Sunday 17 November 2019

Banking Inquiry: Regulatory supervision 'not sufficient to meet challenges posed by banking crisis'

Former financial regulator Patrick Neary said he was "deeply sorry"

Witness Former financial regulator Patrick Neary
Witness Former financial regulator Patrick Neary
Patrick Neary retired as chief executive of the Financial Services Regulatory Authority in 2009
Patrick Neary, the former Financial Regulator
Former Financial Regulator Patrick Neary, pictured last night. Picture: Arthur Carron
Ex-regulator Pat Neary. Photo: Collins

Clodagh Sheehy

Former financial regulator Patrick Neary said supervision by the Financial Regulatory Authority was not sufficient to meet the challenges posed by the banking crisis and he was “deeply sorry”.

However,  Mr Neary who received a €630,000 pay-off in 2009 and has an annual pension of €114,000, said that the Financial Regulator was not a single individual but an Authority. 

He said that “primary responsibility resided with the banks themselves”.

They were “best placed of all to assess their own risks and business models, to strike the right balance between their risk and reward and have skilled, responsible people in place.”

Mr Neary insisted that the Authority did not have the mix of skills necessary for a more intrusive style of supervision.  They had too few staff who were stretched to the limit.

Read more: Banking Inquiry: Anglo CEO Drumm and Financial Regulator Neary's 'informal' meeting to discuss Sean Quinn's financial position

The Authority, he said, relied on the Central Bank’s to monitor and assess risks.  It was obliged to follow Central Bank forecasts and these “predicted a soft landing.

“If that prediction had been fulfilled, there would not have been a banking crisis,” he stressed.

He told Senator Sean Barrett the Central Bank analysis of the situation was “overly benign”.

On the night of the Bank Guarantee, Mr Neary said he and the Chairman of the Authority advised the first meeting at government buildings that on the basis of their information all banks were in a position to meet their obligations on a going concern.

Liquidity, however, “was becoming a critical issue for them, especially Anglo”.

Mr Neary agreed with Fianna Fail Deputy Michael McGrath that the banks had lent too much money to the property sector.

He also agreed the  Authority had an opportunity to set “really hard, well defined limits” with sectoral concentration and segregate some of the riskier sections  but they did not.

Sinn Fein Deputy Pearse Doherty questioned Mr Neary about the concentration of loans where 20 customers of Anglo Irish Bank and 25 at Irish Nationwide Bank had half of all loans and why he had not intervened.

Read more: Why is nobody getting worked up about the Banking Inquiry?

Mr Neary repeated several times that he ““could not conceive of a situation that the regulator would intervene in a contract between a bank and a client”.

It was only in the context of the performance of the loan that the Regulator got involved if the loan became non-performing.

“It was not the business of the Regulator to dictate to banks and their customers” as to how much they could borrow, he told Senator Michael Darcy.

When Senator Darcy asked if the failure of the system was a failure of the people running it but Mr Neary said he “wouldn’t put it that way.

It was down to assessment of risk and if that “was judged to be a major threat that would have forced people to take action.”

Asked by Socialist Deputy Joe Higgins about “cosy” relationships with bankers, why the Regulator should trust bankers and if he was out of his depth,  Mr Neary responded “the authority didn't see it like that. The reality of it is the system failed. I have to recognise and accept that”.

Mr Neary also told the Inquiry that Anglo CEO David Drumm had sought an “informal” meeting with him in September 2007 to discuss businessman Sean Quinn’s financial position and Contracts for Difference.

Mr Neary said that he had made some inquiries with colleagues but there was “nothing other than rumours” until the facts were established in March 2008.

He agreed he had met Mr Quinn in January of 2008 and raised the issue.   Mr Quinn said he had “a small CFD position” and Mr Neary “took that to mean” the CFD’s had been converted into shares.

Read more: Stage now set for Neary's appearance at Banking Inquiry

Later in March when Anglo representatives met with the Regulator it emerged “we were faced with a major problem”.

Mr Neary defended his salary saying it was a civil service grade, the same as the Director General of the Central Bank and 5pc less than the Secretary General of the Department of Finance.

Asked by Deputy John Paul Phelan if his severance pay (of €630,000) was  “appropriate” Mr Neary responded: “that’s what the authority agreed to provide me with. I really have no more to say about that”.

Pearse Doherty asked Mr Neary about how within days of his making a statement on RTE’s Prime Time on October 2nd 2008 that all Irish banks were fully capitalised, some of the major financial institutions came knocking on the government’s door to be recapitalised.

Mr Neary insisted that “on that night, based on information at my disposal, I fully believed in that statement I made”.

He agreed that subsequent matters would call that judgement into question but “at the time that was my belief and it was stated as my belief.”

Deputy Kieran O’Donnell questioned Mr Neary if he still stood over all aspects of that programme.

In relation to his departure from IFSRA in January 2009, Mr Neary said because of the events of the previous months he felt his position in the authority “was going to be difficult”  and it was better to retire.

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