Tuesday 23 January 2018

Banking Inquiry: Investigative team sent into Anglo got 'defensive' response - former acting Financial Regulator

Mary O'Dea
Mary O'Dea

Clodagh Sheehy

An investigative team sent into Anglo Irish bank got a 'defensive response' a former acting Financial Regulator has told the Banking Inquiry.

Mary O’Dea who was acting Regulator for a year after the retirement of Patrick Neary, described how the relationship between the regulator and some banking institutions at the time was “somewhat strained”.

The defensive response of Anglo to her investigative team led her to require “the full Anglo board to meet me in relation to my concern about the level of co-operation.”

Ms O’Dea added that “similarly the reporting of a suspicion to the Gardai on the so called back-to-back loan issue meant that relations were tense with the institutions involved.”

The former regulator outlined how during her period in office a “more intrusive regulatory regime” had been put in place.

This included a regular on-site presence at each institution with periodic attendance and board and committee meetings, significantly increased reporting requirements, greater scrutiny of management information  and a heightened focus on governance structures and processes.

At the time she was in office “confidence in the regulator system was at an all time low” and serious governance matters at certain banks came “to light through our investigations”.

“It was very clear that the system of supervision and regulation that had been in place internationally and in Ireland was inadequate, and needed to be overhauled to protect depositors’ money, to protect the State’s guarantee”.

The overhaul was also needed “to give some level of confidence so as to avoid a large scale, unmanageable run on the Irish banking system”.

When she took over “we introduced a model of supervision that was significantly more intrusive and that required active and frequent engagement with the domestic banking sector”.

As part of the overhaul a Special Investigations Unit with around 25 to 30 seconded staff was set up  and initiated a number of investigations.

“Some parts of these investigations were reported to the Garda in accordance with the relevant law at an early stage.”

Ms O’Dea told the Inquiry there was “no perfect formula for a regulatory system that will prevent financial crises and indeed no regulator can operate a zero failure regime.

Recognition of risk was one of the most fundamental pillars of appropriate supervision.

The relationship between risk and return rarely changed so a careful examination was likely to identify where the risk was.

She suggested that “the bank's board, first and foremost, and then the regulator, should follow the money (especially the seemingly easy money) to probe these risks, both at an individual bank level and at a system level, paying particular attention to the most extreme scenarios.”

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