Wednesday 22 November 2017

Banking inquiry: Inaction by Central Bank and regulator 'very costly failure'

15 Feb 2014; General view of bronze sculpture 'Crann an ?ir' (the Golden Tree) outside the Central Bank, Dame Street, Dublin. Picture: Caroline Quinn
15 Feb 2014; General view of bronze sculpture 'Crann an ?ir' (the Golden Tree) outside the Central Bank, Dame Street, Dublin. Picture: Caroline Quinn

Clodagh Sheehy

Inaction by the Central Bank and the Banking Regulator was a “very costly failure” leading to the economic crisis, Economics Professor Gregory Connor told the Banking Inquiry today.

Prof Connor from NUI Maynooth described “light touch banking regulation” in this country as the “second worst in the world” - second only to Iceland at the time.

The Irish Central Bank and the Regulator should have blocked the enormous growth in property lending assets at domestic banks and the excessively fast debt capital inflow at the time.

Both of them “should have said stop”.

“In terms of preventing the Irish crisis this inaction was a very costly failure”.

He believed this was perhaps the one time where “some single individual or some small group could have stopped the banking crisis from happening.

“If one or more senior officials in the Irish Central Bank had shown the wisdom and strength of purpose” to block the debt capital inflow or the risky property development lending “the crisis would not have happened.”

Prof Connor, an expert on portfolio risk analysis and security market pricing, said Irish bank managers “are quite correctly blamed for irresponsible lending policies during the credit bubble”.

He also suggested that information from the banks to government at the time “may have been deliberately embellished”.

The shareholders too “pressurized bank management to pursue risky strategies” with an expectation of rapidly increasing annual earnings and dividends.

Economists should have “spoken more forthrightly” and had to share some of the blame.

The blanket Bank Guarantee “to an insolvent banking sector” was also “a very costly error”.

The domestic banks on aggregate were insolvent.

The two most insolvent banks, Anglo and Irish Nationwide, should have been left out of the guarantee and restructured.  Giving them the guarantee was “a very costly error”

He felt quite strongly that there were senior people at Anglo and Irish Nationwide banks knew the banks were insolvent and the regulatory authorities should also have known.

He said the economic crisis is directly tied to the actions of the Central Bank and the Regulator. “It was bad luck that Ireland had a collection of bad policies, too much light touch regulation and a political environment  which contributed certainly.”

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