Wednesday 23 January 2019

Banking Inquiry: Business models of some Irish banks 'flawed' in run up to crisis - former CEO of Irish Banking Federation

The Central Bank in Dublin
The Central Bank in Dublin

Clodagh Sheehy

The entire business models and activities of some Irish banks were flawed in the run up to the crisis according to the former CEO of the Irish Banking Federation.

Mr Pat Farrell said the aftermath of the crisis had shown that for some banks their entire model and activities were “fatally or fundamentally flawed” and could not be maintained.

Mr Farrell told the Banking Inquiry that common flaws included under-capitalisation, over dependence on wholesale funding, aggressive pricing and loosening of credit standards.

His organisation was not privy to, and did not have a role in adjudicating on, the funding or liquidity policies, the risk management models, or the composition skills and experience of the boards of individual banks”

He said as CEO he had “sought on several occasions to have broader dialogue with the Central Bank on general banking issues but was given the clear message that IFSRA was the primary conduit for engagement”.

Prior to the night of the Bank Guarantee, he stressed, IBF had no mandate from its Council to discuss specific government liquidity or solvency support initiatives for the sector with the authorities.

It was not a part to considerations by the authorities on such matters.

“During 2009 and particularly after the arrivals of Professor Honohan as Governor of the Central Bank of Ireland and Mathew Elderfield as Financial Regulator there was increased evidence of cross stakeholder working groups”.

These involved the Department of Finance and the Central Bank where IBF was a participant on sector wide issues such as mortgage arrears, access to credit, supporting SMEs in distress, codes of practice etc.

The former secretary general of Fianna Fail, asked about his relationships with Ministers and politicians during his term said this relationship was “appropriate and professional at all times”.

Mr Farrell was CEO of the IBF from January 2004 to June 2013.

He said as the crisis unfolded  during the second half of 2008 “the various members of the IBF became increasingly focussed on their own specific issues and it became apparent that for some of the subsidiaries of international banks the key decisions were being taken outside Ireland.”

The members of the IBF Council, he added, “had differing senses of priorities, were reluctant to show their hands for obvious reasons”.

Engagement with the Central Bank, IFSRA and the State during this time tended to be focussed on issues such as bank support mechanisms for customers including those in mortgage arrears and IBF obligations arising from introduction of the Credit Institutions (Financial Support) Scheme (CIFS).

With regard to the Troika “we were used by the Troika as a source of information particularly during 2011 and 2012 and views were solicited on a range of themes.”

He added: “We had a number of discussions regarding judicial process; legislative and regulatory impediments we believed were exacerbating the problem and presenting barriers to resolution.”

Mr Farrell said all such interactions with the Troika were either done in conjunction with the Irish authorities or the details of the engagement were shared with the Irish authorities.

He declined to give details of his salary with the IBF saying it was a private organisation, not publicly funded, and his remuneration was a matter for himself and his employers.

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