Monday 18 December 2017

AIB was concerned stress tests were not 'stressful enough'

Michael McGrath
Michael McGrath

Clodagh Sheehy and Niall O'Connor

ALLIED Irish Banks raised concerns that it was not being properly regulated more than two years before the financial collapse, it has emerged.

A senior AIB economist raised fears during a meeting with the ESRI that the Central Bank was failing to properly scrutinise the financial sector.

The ESRI's Professor John FitzGerald told the Oireachtas Banking Inquiry that there was concern at senior level in AIB that Central Bank stress tests were not "stressful enough".

Prof FitzGerald said he understood the approach itself was coming from "a more senior level than the economists" within the bank and it "first primed me to be concerned" about the financial health of our banks.

It appears to illustrate the level of suspicion within mainstream banks that they were heading towards freefall.

He said he was telephoned by a senior economist in AIB early that year, expressing concern about the level of stress testing.

"My understanding was they felt the stress-testing was not stressful enough - kind of ironic.

"They were approaching us (ESRI) to do it."

He then met the economist and another person and explained that the ESRI had already put together a number of macro-economic scenarios.

He told them that this information was available publicly on CD, for a cost of about €250.

He suggested the bank could look at a copy of the CD - and he did not hear further from them.

Prof FitzGerald said his meeting would never have happened "unless there was a very senior buy-in" to the issue in the bank.

He told Fianna Fáil deputy Michael McGrath he was subsequently approached by Ulster Bank and PTSB.

On foot of this, he approached the Central Bank in 2007 wanting to talk about it.

But he said despite emails over several months, "for various reasons" the meeting never happened.

Speaking about the ESRI, he added that "clearly we had put out our warnings". But he said: "Nobody in the political system seemed to be interested.

"My impression was that people weren't interested in taking the punch bowl away."

Prof FitzGerald added: "I was concerned that the stress tests being undertaken by the Central Bank were not onerous enough.

"They were looking at falling house prices, but not taking account of the fact that a lot other things would happen at the same time.

"They were not using a model to do this so I contacted the Central Bank about my concerns in that regard in 2007."

Asked if he got a satisfactory reply from the regulator on both occasions, Prof FitzGerald responded: "No".

Irish Independent

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