Tuesday 12 December 2017

Former Central Bank board member Alan Gray offers detailed notes from infamous Druids Glen golf outing to Banking Inquiry

Mr Gray told the Banking Inquiry the notes were circulated both at the meeting in the home of Fintan Drury before the golf outing and later at a dinner in the golf club.
Mr Gray told the Banking Inquiry the notes were circulated both at the meeting in the home of Fintan Drury before the golf outing and later at a dinner in the golf club.

Clodagh Sheehy

Former board member of the Central Bank, Alan Gray, has offered a sheaf of 11 pages of detailed notes from the infamous Druids Glen golf outing to the Banking Inquiry.

The outing on July 28th 2008 was attended by former Taoiseach Brian Cowen and Anglo bank boss Sean Fitzpatrick, Fintan Drury and Gary McGann both non-executive directors of Anglo and Mr Gray.

Mr Gray told the Banking Inquiry the notes were circulated both at the meeting in the home of Fintan Drury before the golf outing and later at a dinner in the golf club.

Asked by Deputy John Paul Phelan if it had been appropriate to attend such a meeting Mr Gray said from what he knew now it was not, but “I had been so concerned about the issue of unemployment in the Irish economy” he had never refused an invitation to discuss it.

He said the meeting had been organised by Mr Drury but he had been asked by Mr Cowen beforehand if he was willing to have a session to give his views on the economy.

No-one had asked him to prepare an agenda for the meeting but he had arrived with the notes and these in effect had become the agenda.

Mr Gray said he put quite a lot of effort into his advice for the meeting including consultation with some international colleagues.

He said he had not been asked by the Inquiry to cover this event but felt it appropriate to include it in his evidence and had no difficulty supplying a copy of the notes to the inquiry.

Mr Gray said he was not involved in organising the meeting or in deciding who should attend.

Towards the end of the meeting Mr Cowen had suggested it would be useful to continue the discussion that evening and asked if he could joint the group for dinner.

The former Central Bank board member stressed that he did not play and had never played golf.

His recollection was that he had left the meeting before 2pm, returned to his office to work on some research, and then attended the dinner in the evening to continue the discussion.

He also said on the afternoon before the Bank Guarantee Mr Fitzpatrick and Mr David Drumm of Anglo had called to his office “to say they were facing a crisis”.

He insisted that they had not requested any action on his part or asked for any advice and their movitivation for requesting and attending the meeting “is a matter of specualtion”

Mr Gray said the Bank Guaranteee was the “least worst option available, the sensible option of the terrrible options available.”

“However I always understood that a response to the liquidity crisis would only buy time to address the underlying problems and to deal with issues in individual banks and to plan for a restructuring of the sector.”

In the aftermath of the Guarantee he felt “the banks were still in denial of the necessary capital requirement as they were suggesting to the Central Bank that they had adequate capital to meet regulatory requirements and to deal with bad debts.”

He said that accurate information was also not obtained from the banks or elsewhere on the position of major borrowers  depended on property “and I raised this at Board meetings”.

In his view there was insufficient regulation of the banks and inadequate capital requirements particularly between 2000 and 2007.

More intensive involvement in the approval of directors of banks would have been appropriate.

“Too much comfort was taken from the fact that the approach to regulation appeared to be in line with international practice”.

Mr Grey stressed that regulatory systems “did not cause the crisis, but did not prevent the practices which led to the crisis”.

He described “a too “hands-off” approach to the banks was taken and too much reliance was placed on the boards and management of the banking institutions.

“There was an overdependence on stamp duty and VAT from property and too rapid a growth in public expenditure and little flexibility to handle the economic downturn.”

The escalation in property prices was further fuelled by the build-up of tax incentives. which were supported by a range of vested interests, including investors, property developers and banks dependent on property.

At an emergency meeting of the Central Bank Board on September 25th, four days before the Guarantee, he had “the distinct impression that a guarantee of all banks was being seen as the favoured option and probably the only option in serious contention.

His own view was the best option was a European ECB-wide initiative but there seemed to be a reluctance by the ECB to recognise the scale of the problem or take responsibility for their role.

Mr Gray told the committee over the next few days it was clear the crisis was getting much worse and “I had difficulty sleeping as I felt that a bank run was now a real possibility.

“There was a sense of panic in world financial markets and we were evidently in unchartered waters.”

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