Tuesday 21 November 2017

Banking Inquiry: Bank CEO 'threw keys across table and asked regulator if he wanted to run bank'

Central Bank
Central Bank

Clodagh Sheehy

A CEO of a large bank throwing a bunch of keys across the table to the Financial Regulator asking him if he wanted to run the bank, was described by a former chairman of the Regulatory Authority to the Banking Inquiry.

Brian Patterson who was chairman of the Irish Financial Services  Regulatory Authority (IFSRA) from 2003-2008, said the incident showed how many of the interactions with senior bankers “were extremely robust”.

Mr Patterson told the Committee that the Financial Regulator had “clearly failed in its duty to uphold the safety and soundness of Irish banks. 

“As chairman of the Authority I accept responsibility for my part in that failure. It is something I regret deeply. Had I known then what I know now, things could have been very different.”

When it was set up, he explained, none of the Board members of the Authority had any experience of regulating banks and in hindsight there was not enough training.

“There was little or no acceptance that prudential regulation was in fact the ultimate consumer protection for depositors, shareholders and, as we now know, taxpayers.”

It is clear with hindsight, he said,  that the Financial Regulator, as it was constituted, was not entirely fit for purpose.

“A modern financial regulator needs a board with regulatory experience and skills” along with an enabling legal framework to counter “the naturally powerful influence of the banking sector”.

“It needs freedom of action and clarity in its legislative mandate that it is single-mindedly to prioritise the stability of the banking sector over other competing public policy goals.”

Mr Patterson said that none of the internal processes or external reports “raised serous red flags about the banks’ vitality or pointed to any of the cataclysmic events that were to follow.

“Had any of them shown a risk to a bank’s solvency – let alone to the banking system as a whole - the alarm bells would have been ringing loudly and the Authority would have been impelled to investigate and to take action.

He said, however, that shortcomings in the structure did not alone explain why the system failed.

“The Authority simply did not see the enormity of the risks being taken by the banks themselves and the calamity that was to overwhelm them.

“Had we known then what we know now, we would, of course, have acted more strongly and used whatever powers were at our disposal with the forcefulness required to rein in the banks’ lending.”

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