Saturday 21 April 2018

Honohan urges Europe to take responsibility for regulating banks

Central Bank Governor Patrick Honohan
Central Bank Governor Patrick Honohan
Laura Noonan

Laura Noonan

EUROPE should take responsibility for regulating Ireland's banks and repaying bondholders of collapsed financial institutions, Central Bank Governor Patrick Honohan said last night.

Appearing at an event in London, Mr Honohan argued that a new pan-European regulator wouldn't be affected by national blind-spots like the Irish property bubble, and could therefore do a more effective job of supervising banks.

He also argued that paying off busted bank bondholders should be "the responsibility of a Europe-level resolution agency" and not of "stressed countries" and slammed the "irresistible" pressure for Ireland to preserve the European bond markets by paying off bank bondholders.

The governor also added that steps towards creating a new "European banking union" could kick start the "growth recovery which is so essential".

Failings in bank regulation were a major factor in Ireland's banking implosion, as supervisors failed to spot banks' ballooning credit risk, their dysfunctional funding bases and numerous other problems.

Since then, a new regulator and executive team has been appointed and a more robust regulatory approach established.

The financial regulation functions have also been transferred back under the umbrella of the Central Bank.

"In periods of collective national myopia such as that which generated the property bubble in Ireland, the chance of getting somebody whose judgment is not affected is greater, the more distant their base," he said.

Failures

"It's time to start the ball rolling in a direction going well beyond the current mandate of the ESRB (European Systemic Risk Board) and the ESAs (European Supervisory Authorities)."

The European Central Bank has repeatedly insisted that it has no role in banking supervision since national authorities closely guard their rights to regulate their own banks. Mr Honohan, who sits on the ECB's governing council, yesterday said there would still be a role for nationals to be "involved in supervision" since "often it is they who pick up the vibes and the market talk".

He insisted countries could still have tailored capital rules so regulators couldn't "hide behind the single market as an excuse for dodging unpopular bubble-bursting measures of restraint".

A pan-European resolution agency would go hand in hand with pan-European regulation, so Europe could collectively take responsibility for banking failures, he said, noting that Ireland was under "irresistible" pressure" to ensure senior bank bondholders were repaid.

"I could not see the case for asking a stressed government to do this order to protect the functioning of the bank bond market in other countries," he said. "Such decisions, and paying for them, should at least be the responsibility of a Europe-level resolution agency."

He added that getting an "alternative" to creating a European banking union "could be a progressive dismantling of the European single banking market", something that he was "not at all sure" would bring a benefit to either Ireland or the UK.

Irish Independent

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