Business Banking Inquiry

Saturday 23 March 2019

Banking inquiry: I accept responsibility for crisis, I am sorry for hurt it has caused - Cowen

Clodagh Sheehy and Daniel McConnell

Former Taoiseach Brian Cowen said he was not lobbied by anyone to introduce the bank guarantee.

Mr Cowen, under questioning from Fianna Fáil’s Michael McGrath about whether he was contacted ahead of the 2008 decision, said he got no requests.

“No I had no requests about a guarantee from anyone,” he said. This evidence appears to be in conflict with evidence given by former secretary general of the department of finance Kevin Cardiff who said bankers had lobbied him from early 2008 in favour of a guarantee.

Mr Cowen, who was Taoiseach when the decision was made, insisted nobody contacted him at any stage.

Mr Cowen insisted there was no crisis when he handed over the reins to Brian Lenihan in May 2008 said liquidity issues in the banks had been raised eight or nine months previously.

The former Taoiseach said he did not accept he had mismanaged the economy.

Former Taoiseach Brian Cowen
Former Taoiseach Brian Cowen
02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins
02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins

“People can have their criticisms of it but there is a very clear policy position behind what we were trying to do,” Mr Cowen said.

Mr Cowen was repeatedly quizzed about a dinner he attended with Anglo Irish Banks executives in 2008 by inquiry members.

He said he was invited to attend a dinner by Fintan Drury, and that he attended without the presence of any of his officials.

Mr Cowen said he had not met with the banks at any time while he was minister for finance and said the occasion was a "very social occasion."

02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins
02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins
02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins

He said he took no notes or received any briefing materials, but did say there was a short speech by one executive as to the performance of the bank.

Earlier, Mr Cowen defended the Bank Guarantee as the most decisive step the government could take on the night to deal with the problem.

He said: "We had one shot at it."

Mr Cowen told the banking inquiry: “It was clear we were on our own,” and “If we didn’t get it right Ireland would be set back 25 years.”

02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins
02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins
02/07/2015 Former Taoiseach Brian Cowen TD arrives at the Oireachtas Banking Inquiry in Leinster House, Dublin. Photo: Gareth Chaney Collins

Brian Cowen's opening statement at Banking inquiry

Mr Cowen said as head of government at the time “ I accept full and complete responsibility for my role”.

He was sorry that the necessary measures “brought with it hardship and distress to many people” and said “the human cost was the most difficult aspect of the decisions we had to make”.

The former Taoiseach stressed that he wanted to make it clear from the beginning that nothing he said to the Inquiry “should be interpreted in any way as an attempt to pass the buck to anyone else.”

The government of the day, he added, had dealt with the financial crisis to the very best of its ability.

No option looked good at the time and it was a case of “taking the least worst option”.

He agreed with Central Bank Governor Patrick Honohan that the primary responsibility for the crisis lay with the banks themselves.

There was reckless lending by individual banks made worse by a bonus culture.

Mr Cowen said the €34bn cost of Anglo Irish Bank and Irish Nationwide Building Society  would not be recovered but had they collapsed the effect would  have been catastrophic.

It was becoming clear since that there was no solution free of risk, he added.

At the time the government did not have the benefit of hindsight and “no doubt there were failures at the time on the domestic front.”

“We must learn from this difficult experience and make sure it never happens again”, he added.

Lessons had now been fully taken on board and policies implemented to ensure that a banking crisis can never happen again in Ireland, he said.

“While Government shares responsibility for its role in these mistakes, it is noteworthy that many of the strongest critics of the Government were silent on these issues prior to the crisis and indeed were proposing measures such as the radical reduction or abolition of stamp duty which would have made the position much worse,” he said.​

Repeatedly, Mr Cowen and Fine Gael TD Kieran O'Donnell clashed over the length of his answers, with Mr O'Donnell repeatedly interjecting when Mr Cowen spoke.

"My time is running short," Mr O'Donnell pleaded.

"Please, deputy, it took you five minutes to ask the question," said Mr Cowen.

"I will sit here as long as you wish," Mr Cowen said when interrupted by Mr O'Donnell.

The chairman had to use the gavel to restore order and said he appreciated Mr Cowen's willingness to stay as long as requested, but urged him to restrain his answers as much as he could.

Mr Cowen insisted that spending targets on his watch were prudent at the time, and he said he had to make policy decisions as what to do at the time.

During some tetchy exchanges between the two, Mr Cowen said some policies were clearly not sustainable and would have been moderated.

Again, the two politicians clashed with voices raising considerably.

"Do you want a political debate, or do you want answers," Mr Cowen asked Mr O'Donnell.

"I am trying to help you," Mr O'Donnell responded.

"There was a rationale for everything we did, we were budgeting for the decline in housing output," Mr Cowen said.

"If you build schools you have to put teachers in them, if you build hospitals you put nurses and doctors in them," he said in response to questions about the huge spike in current spending in 2006, just before the 2007 General Election.

 Mr Cowen responded sharply to a question from Mr O'Donnell as to whether he felt sympathy for those who suffered.

"You have no monopoly on upset deputy. Of course I have sympathy with those who have suffered. If we all had time back, but no one knew then we would have a financial crisis in 2008," Mr Cowen said.

"I am not trying to shift the blame. I was the guy who was there I am here to explain," he said.

Under questioning from chairman Ciaran Lynch, Mr Cowen in considerable detail said he was a fit choice to be made Minister for Finance in 2004.

"I had been in Cabinet since 1992 in big spending departments. I certainly was the person most au fait with the workings of Cabinet. I am a qualified accountant. It is a question of political leadership and direction," he said.

Mr Cowen did accept that there was a misjudgement of risk in relation to the banking crisis and the increasing links between Irish banks and banks in other countries.

Asked by Mr O'Donnell did he think there was a property bubble emerging when he took over, Mr Cowen said yes and referred to an ESRI report.

 Pressed by Mr O'Donnell as to why he did shut down property tax incentive schemes earlier, Mr Cowen said he awaited the publication of two reports he commissioned before he acted.

 "That is the way I do business," he said.

 Mr Cowen said if he was to be in office again, "of course we would do things differently".

 Mr Cowen said he agreed with Charlie McCreevy's comments that when he left office in 2004, the economy was in rude health.

 Asked about an interview Mr Ahern gave to the Sunday Independent in 2007 in which the former Taoiseach committed to removing stamp duty for first time buyers.

 Mr Cowen had before then resisted strong pressures to remove stamp duty as he said to do so would only inflate the market even more.

 But asked about Mr Ahern's interview he said: "I was delighted he didn't go as far as the Labour Party or Fine Gael wanted to. His comments were in line with Fianna Fáil policy of introducing targeted measures to help first time buyers."

The combative exchanges continued when Mr Cowen accused Deputy Joe Higgins of “setting me up as some sort of guy promoting cowboy speculators.  I am not”.

The deputy has asked Mr Cowen about the infamous Fianna Fail tent at the Galway races which he said was meeting place for many of the leading developments and construction companies who had given “serious donations to your party over the years” and many of whom had ended up in NAMA.

Mr Higgins  wanted to know if the close relationship with developers impacted on government policy.

“No its not the case at all.  You couldn’t get a winner in the Galway tent never mind anything else” said Mr Cowen.

The former Taoiseach insisted there was a lot of mythology around contracts being signed in the tent but if that was the case “why would we bring the media to sit down” there as well.  “Its all nonsense.”

Mr Cowen said he had never been influenced by the property sector.  “No, I’m my own man. I can give you an absolute unequivocal assurance” that any decision he took on public policy was taken in the public interest.

“I am my own man and always have been and I’m very proud of that. I haven't been involved in any of this sort of nonsense at all”.

He also asked of developers were giving large donations to the Fianna Fail party in government why had the party been “in constant debt” during his time in office.

Deputy Joe Higgins wanted to know if there was conflict for the  Central Bank and Financial Regulator in regulating while at the same time promoting Ireland as a centre for financial service, Mr Cowen replied: “there seems to have been some confusion in someones mind as to the role they had. but he did not believe this was conscious. it seemed to be more of a cultural thing.”

​He ​ made the point that only 3pc of lending was by banks in the IFSC and the problem was in main street banks “in our own retail banks”.

​T​he whole problem about the crisis, he added,​ had been misjudgement of risk.

Ireland had more regulatory interventions than Spain but still had a crisis.

“Principles based regulation doesn't abdicate people from doing their job. The job wasn’t done.

“I just don't accept that principles based regulation was the reason we had a crash.  Spain had rules based regulation and still had a crash.”

At the end of the day, he added,  principles based regulation “imposes very heavy duty on the management and the boards  and directors of financial institutions to make sure they are working  within their framework and clearly they weren’t".

Mr Cowen said he was surprised at the low numbers of people working on prudential supervision of Anglo Irish Bank and Irish Nationwide within the Central Bank.

 "Because it was like that, it might have set a tone with the banks," he said.

 Mr Cowen was questioned by Senator Sean Barrett as to his statement that it was not the role of the Department to second guess the actions of the Central Bank or the Financial Regulator.

 "Is that not precisely what you should be doing?" Senator Barrett asked.

 "It was not a god practice to have  what might be called as political interference into the regulator's office," Mr Cowen replied.

 "They should not be agnostic but they should not be interfering," he said.

 Mr Cowen, said his tenure was a time of great hope coming after several years of economic growth, but domestic demand grew at the expense of exports.

 Asked by Fine Gael's John Paul Phelan did he view his term in finance as a success, he said:

 "I look at the budgets I passed and the measures I introduced and I am happy with that,  in hindsight we might do a few things differently."

 Mr Phelan raised dissenting voices from the Central Bank and the ESRI from the time, particularly about the possibility of a "hard landing".  Mr Cowen said it was deemed very unlikely that a hard landing was possible.

 "There wasn't a feeling that it was likely, that is why we ended in a crisis," Mr Cowen said.

 "The actuality emerged within 12 months and we made immediate arrangements to change policy. We brought in 4 budgets to close the gap and introduced a four-year-plan," he said.

He did not accept a suggestion by Deputy Marc MacSharry that with hindsight he was too long in office and “on autopilot”.

“I do not accept that.  The size of the problem was huge,” said Mr Cowen

Mr Cowen was in favour of social partnership although it was becoming very fashionable now to run it down.

He remembered the ‘80s and how difficult things were.  “I believe the methodology used then was the right way to go and is the right way to go”.

He said social partnership had framed the budget. “Unless you have people all facing the one way in this country it is very difficult.”

He believed that social partnership had worked very well.  Obviously there were some mistakes “but it did work for this country. It put everyone on the same page”.

He added: “what we have now is social dialogue”.

Mr Cowen said he did not recognise the large increase in property lending as an imminent risk to the economy, but acknowledged that was a mistake.

 "Obviously one at the time recognised there was an increasing reliance on property lending. But I didn't recognise it as an imminent risk. When the crisis hit, we were exposed and the banks were exposed. But people had been confident about the future," he said.

 Mr Cowen conceded that as minister he didn't do enough to question the consensus view that at worst the economy would experience a soft landing.

 "Clearly, it wasn't questioned sufficiently, I accepted the consensus view. That is an issue to be looked at by this committee," he said.

 Asked by Michael McGrath about criticisms made by Patrick Honohan about late bursts of spending "at the worst possible time" in the run up to the 2007 General Election.

 "We don't live in technocracy but in a democracy, you make decisions and stand over them. I feel what we did was responsible, was warranted and correct," he said.

The first of two appearances at the Oireachtas Banking Inquiry focuses on his term in charge of the national finances from September 2004 until May 2008.

The seven TDs and four senators will focus their questions on what efforts, if any, were made to avoid a property boom and ultimate bust.

Mr Cowen returns to the banking inquiry next Wednesday to discuss his term as Taoiseach, from May 2008 until March 2011. The inevitable focus here will include events before and after the bank guarantee in September 2008 and the EU-ECB-IMF bailout which began in November 2010.

Today, Mr Cowen will also face questions about why, as finance minister in a time of abundant funds, he did not hire more experts to his department.

A 2011 investigation, headed by the former head of the Canadian finance department, Rob Wright, highlighted the lack of economic expertise in the Irish Finance Department.

The TDs and senators will also ask Mr Cowen about how much he heard from dissenting voices within his department. In 2012 it emerged that as far back as 2005 a mid-ranking official, Marie Mackle, raised concerns about the rapidly increasing property prices and the risk of a market crash.

In February 2005, Mr Cowen told the Dáil all was well with the property market.

"Most commentators believe that the Irish housing market is underpinned by strong economic fundamentals and favourable demographics," the then-finance minister said.

He also faces questions about his relations with builders, developers and bankers.

Mr Cowen said there was “clearly a culture of deference in operation between the Financial Regulator and the Financial Institutions it was regulating”

He said he agreed with the findings of the Nyberg Report “which asserts that the policy apparatus was complacent.

“As Minister, I should also have been more doubting, more questioning by challenging the broad consensus of opinion that had developed on these matters.”

He also agreed with the conclusions of the Regling and Watson Report that banking practices, governance failings and financial supervision “seriously exacerbated Ireland’s credit and property boom”

This had “left the economy vulnerable to a deep crisis and depleted its fiscal and banking buffers when the crisis struck”

Mr Cowen believed that had there should have been a “more robust, independent work and scenario planning”  by both the Central Bank and the Financial Regulator regarding the banking system.

This would have allowed the Central Bank, Financial Regulator and the Department “to develop timely, strategic interventionist policies and strategies”.

There was also a lack of analysis by both the Central Bank and the Regulator in challenging the over concentration of risk in property, he said.

The over emphasis on the residential housing market rather than on commercial property was “a mistake”

The former Finance Minister said he regretted that current spending growth was not lower during his time as Minister but a more modest rate of growth would “not have eliminated the need for the painful fiscal adjustments we saw from 2008”.

Those who suggested  he did nothing to curb the property spiral “specifically ignore” that in his Budget of 2006  “I announced the most radical abolition of property based tax incentives made by any recent Minister for Finance.”

During his time as Minister, he added, “there was no consensus that we were heading for what ultimately happened”.

Irish Independent

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