Monday 16 December 2019

Bank executives' powers blunted by new loan rules

Financial Regulator
Matthew Elderfield. Photo: Tom Burke
Financial Regulator Matthew Elderfield. Photo: Tom Burke

Laura Noonan and Donal O'Donovan

BANK executives will never again be able to tweak the terms of loans given to their peers after the Financial Regulator gave bank boards responsibility for "related-party lending".

The move, announced yesterday, represents a significant blow to Ireland's banking industry, which had lobbied strongly for the power to remain an "executive function".

But the bankers have secured some concessions, with the regulator agreeing to set a floor of €1m for new "related-party" loans that have to be pre-approved by the Central Bank.

The measures are part of a sweeping package of reforms designed to ensure that previous scandals like Sean FitzPatrick's €87m in concealed loans are not repeated.

The regulator defines related parties as "a director, senior manager or significant shareholder" as well as spouses, children and "domestic partners" of "any of the aforementioned partners".

Proposals for the measures were first unveiled in May and views from interested parties were invited.

Some eight submissions were lodged, but the final proposals revealed yesterday were almost identical to those mooted in May.

Key submissions included contributions from Ireland's two biggest banks, Bank of Ireland and AIB, as well as from industry group, the Irish Banking Federation (IBF).

All three made a case against the regulator's proposals for board approval of "actions in respect of the management of a related-party loan", including interest roll-ups, loan write-offs and enforcement action.

"AIB believes that credit decision-making and management are executive functions which should be carried out by executive management subject to board lending policies and ongoing board oversight," the bank said in its submission.

Bank of Ireland said that the proposals for board app- roval of every related party were "impractical", "as is board involvement in the day-to-day management of loans".

The IBF, meanwhile, has pointed out that "approval and management of credit is not normally a board function" and urged a "high-level executive committee" that would report regularly to the board as an alternative.

The regulator, however, was unmoved by the bankers' core argument, but did agree to vest decision on related-party loans in a "sub-committee" of boards rather than full boards.

AIB and BoI both declined to comment on the topic last night, while the IBF said its members would comply with the rules set down by the regulator.

The move to give greater responsibility to directors comes against the regulator's wider quest to improve the calibre and engagement of bank boards.


Addressing the IBF's annual conference yesterday, a senior official from the regulator's office Jonathan McMahon described the pool of bank directors as "too shallow".

Yesterday's announcement on related-party lending also showed the regulator refused to bow to Bank of Ireland's appeals for the rules also be extended to credit unions.

The regulator did, however, concede a €1m floor on new related-party loans that would need to be approved by the Central Bank, in line with industry suggestions.

The rules are due to kick in on January 1 next year.

Their broad tenet is to prevent bank insiders from securing loans on more favourable terms than ordinary punters and strikingly more favourable deals on debt write-offs than those available to the general public.

Irish Independent

Also in Business