Honohan writes to inquiry to 'clarify' testimony
Central Bank Governor Patrick Honohan has written to the chair of the Oireachtas Banking Inquiry to clarify hard-hitting evidence he gave last month.
Prof Honohan has written to Ciaran Lynch to "rephrase" his views on what was the best thing to do with Anglo Irish Bank in September 2008.
He said his thinking hasn't changed since his 2010 report on what the government could have done at the height of the crisis, but said: "On reading the official record, I can see a different impression might have been conveyed."
Prof Honohan distinguishes, in his letter, between a "hindsight scenario" and what information was actually available to government at the time.
"The discussion at my session with the inquiry moved between these two scenarios in a manner that may not have been altogether clear," he wrote.
Setting out his hindsight scenario, Prof Honohan argued that had the government known saving Anglo and Irish Nationwide would cost €35bn, guaranteeing the two banks would have been too expensive as opposed to liquidating it.
"Although Anglo was clearly a systemically important bank at the time, the government would have done better by not including those two banks in a guarantee," he said.
He added that such a move would have "shocked" European officials. In a second scenario, based on the limited information available, Prof Honohan said then finance minister Brian Lenihan should have nationalised Anglo and top managers should have been cleared out.
He said emergency liquidity assistance from Europe would have been extended to allow time to wind the banks down. As a result a far less costly guarantee could have been provided.
He said ultimately the government was mistaken in its course to extend the blanket guarantee, in leaving senior managers in place for months which he said created a "potential risk (even though there was no evidence of management looting of the two failed banks)".
Ultimately, Prof Honohan said: "None of the courses of action available at the end of September 2008 would have relieved the State of all of the costs that resulted from bank failures," he said.
Meanwhile, at the Trinity Economic Forum in Dublin last night, Prof Honohan explained his decision to allow first-time buyers some relief in new mortgage deposit rules by saying they represent a "safer prospect" for lenders than other buyers.
"They don't default as much," he said.
Prof Honohan said research that showed this to be the case allowed the Central Bank to be "much more comfortable" in making the decision to give relief to first-time buyers.
Other speakers included Constantin Gurdgiev, Lucinda Creighton and Ronan Lyons.