Saturday 20 July 2019

Cowen didn't overrule Lenihan on night of guarantee, says former banking chief

John Hurley, former Governor of the Central Bank, arrives at Dáil Éireann to testify before the Banking Inquiry. Photo: Tom Burke
John Hurley, former Governor of the Central Bank, arrives at Dáil Éireann to testify before the Banking Inquiry. Photo: Tom Burke
Brian Cowen: chaired an orderly discussion

Clodagh Sheehy

Former Taoiseach Brian Cowen did not overrule anyone on the night of the bank guarantee, former Central Bank Governor John Hurley has told the Banking Inquiry.

Mr Hurley said the blanket guarantee was necessary or it would have "taken decades for the country to recover".

He described how , on the night of the guarantee, Mr Cowen had chaired an orderly discussion at a very constructive, well-organised meeting.

"There was no overruling by the Taoiseach in my presence," he added.

Central Bank Governor Patrick Honohan has already given evidence to the inquiry suggesting that former Minister for Finance Brian Lenihan wanted to nationalise both Anglo and Irish Nationwide banks but was overruled by a more senior politician in the room. The late finance minister's relatives, Mary O'Rourke and Conor Lenihan, have been pushing for the right to provide evidence on this and other issues regarding Brian Lenihan's role during the crisis.

However, Mr Hurley yesterday said that during the final session of the night of September 29, 2008, Mr Cowen had recorded the decision and asked everyone in the room for their view.

"There was no dissent," Mr Hurley told the committee.

He believed Mr Cowen was "very clear" at the final meeting in what he said to the banks about a broad bank guarantee.

He also said that on the night he personally had opted for the inclusion of subordinated debt in the guarantee.

The former Central Bank governor explained that while he had been reluctant to recommend a guarantee "because of the scale of it" at a meeting on September 18, "in the intervening period the scale of losses at the main Irish banks was truly horrific".

The outflow from the banks was "very, very serious".

They knew one bank was close to being illiquid and the others were close to liquidity problems. "It was a dire situation," he added.

By the time he was entering government buildings for the meeting on September 29, 2008, he said: "I had come to the view there was very little option but to go the broad guarantee route".

Mr Hurley stressed that there was no question on the night of the guarantee that one bank would crash the following morning.

"All of the arrangements were made. There was going to be no default," he said.

Liquidating one bank was not an option and he would not have advised any government to take that risk.

Mr Hurley's understanding was that legislation to nationalise a bank was ready or nearly ready that night.

The key message from Europe was that there could not be another Lehman Brothers-style collapse, countries had to stand behind their banks and there was no pan-European initiative. "I can't put it more strongly than that."

He said the guarantee for six banks was the right decision, once they had decided that they were not going to nationalise a bank.

"The bigger issue was how to avoid the risk to the entire banking system materialising with catastrophic consequences for the entire country."

Mr Hurley, who was governor from 2002-2009, explained that there was a "strong view" on the night of the bank guarantee "that the Government had one opportunity to assuage the markets".

"If the decisions taken were considered inadequate and failed, the consequences for the banking system would be devastating and lead to very serious economic and social fallout for the country as a whole," he added.

He accepted the "Central Bank share of responsibility for what occurred" in the banking crisis.

He believed, however, that "regulation on its own could not have stopped this crisis from happening" and that international factors played a crucial role.

He very much regretted that the Central Bank had "underestimated the risks".

Mr Hurley conceded: "The response of the Central Bank and indeed all other agencies would have been more robust if it had foreseen the scale of events that were to unfold."

Irish Independent

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