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John Hurley: Last of the breed

The implosion of the Irish banking system on his watch has cast a dark shadow over the career of John Hurley, who retired as Central Bank governor at the end of last month after over 40 years in the public service.

Hurley's retirement should have marked the culmination of a successful bureaucratic career. In his more than four decades in the public service he ticked all of the right boxes.

Originally, from Mallow, Co Cork, Hurley joined the Department of Finance straight from UCD and later qualified as a barrister. After two decades at Finance he was transferred to the Department of Health as assistant secretary in 1986. Four years later he was promoted to secretary-general at the Department of Health.

It was while at the Department of Health that Hurley first displayed his remarkable ability to avoid being damaged by the controversies raging around him. During his eight years in the department elderly patients were illegally charged for nursing home care -- a practice that was eventually ruled to be unlawful by the Supreme Court in 2005.

Illegal charges

While the illegal charges dated back to 1976, Hurley did nothing to stop them as either assistant secretary or secretary- general. When the Supreme Court decision forced the Government to pay several hundred million euro in compensation an official enquiry blamed the then secretary-general of the Department of Health, Michael Kelly, who was subsequently moved to another job.

Happily the affair had no impact on Hurley, who had by then become governor of the Central Bank.

It was also while Hurley was at the Department of Health that the Blood Transfusion Service gave contaminated blood to several hundred women, infecting them with Hepatitis C. At the subsequent official enquiry into the affair Hurley was embroiled in an unseemly spat about who knew what about the contamination and when they knew it.

However, no blame attached to him and in 1994 he returned to the Department of Finance as secretary-general of its public service management division, effectively the State's chief personnel manager (unlike other departments which must make do with just one secretary-general, the Department of Finance has five officials of that rank).

That was a good place to be in the mid to late-1990s. The booming tax revenues generated by the Celtic Tiger meant that this was the heyday of social partnership and Hurley caught the eye of Bertie Ahern, the architect of the process of centralised pay deals, who became Taoiseach in 1997.

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Even so, it came as something of a surprise when Hurley came from the back of the pack to beat the more widely fancied Paul Haran, secretary-general of the then Department of Industry and Employment, and Paddy Tutty, then the second secretary of the Department of Finance, to succeed Paddy Mullarkey as secretary-general of the Department of Finance, the top job in the civil service, in February 2000. Clearly, behind that lugubrious exterior and bookish manner lurks a formidable bureaucratic battler.

Time-honoured manner

Two years later Hurley switched jobs once again when, in the time-honoured manner, he moved from the Department of Finance to the Central Bank where in March 2002 he succeeded Maurice O'Connell as governor.

He arrived at the Central Bank in the aftermath of two very significant events. At the beginning of 2002 euro notes and coins had finally replaced Irish currency. Given that Ireland had been a member of the eurozone since the start of 1999, the replacement was on one level a largely symbolic move.

However, it was the entry of euro notes and coins into everyone's pockets, wallets and purses, which finally brought home to the public the fact that Ireland was now irrevocably tied into the eurozone.

A few weeks later any euphoria at the Central Bank following the introduction of euro notes and coins gave way to something close to panic when a massive $691m fraud was discovered at AIB, Ireland's largest bank. Despite rogue trader John Rusnak being one of the biggest players in the dollar/yen market for most of 2001, his fraud went undetected by AIB and the Central Bank.

The discovery of the Rusnak fraud came just over a year before the awkwardly-renamed Central Bank and Financial Services Authority of Ireland took over the task of financial regulation. Throughout the 1980s and well into the 1990s the Central Bank had largely turned its nose up at financial regulation.

It was only in the run up to the formation of the euro at the beginning of 1999 that the Central Bank belatedly realised that, with most of its monetary functions set to migrate to the Frankfurt-based ECB, financial regulation was the only game in town. If it failed to secure this mandate then it would have had no option but to shrink drastically.

At the same time a series of banking scandals made it clear there was a need for a tougher approach to financial regulation. The 1999, the McDowell Report recommended that the job of financial regulation be entrusted to a new, independent organisation. This was fiercely opposed by the Central Bank and the Department of Finance which successfully lobbied the then Finance Minister Charlie McCreevy to place the new organisation under the overall control of the Central Bank. It was to quickly prove a Pyrrhic victory.

The new Financial Regulator, largely staffed by former Central Bank employees, opened for business in May 2003 just as Ireland's credit-fuelled property boom was about to go into hyper-drive. In the first five and a half years of its existence, Irish bank lending almost tripled to €400bn, three-quarters of which was property-related.

Beyond issuing occasional bland warnings of the possible dangers of the over-exposure of the Irish banking system to property-based lending in official Central Bank publications, neither Hurley nor Financial Regulator Patrick Neary seemed to have a clue what to do about the rapidly inflating property bubble.

Their sloth stands in stark contrast to the actions of the Spanish central bank which imposed a rigorous provisioning regime on its banks. This has meant that the Spanish banking system has emerged in much better shape than its Irish counterpart following the collapse of the property market.

When the inevitable crisis finally struck the Irish banking system almost exactly a year ago both the Central Bank and its offshoot, the Financial Regulator, were caught almost totally unprepared.

Indeed in the Central Bank's 2007 annual report, which was published at the end of June 2008, just three months before the Government was forced to unconditionally guarantee the deposits of the Irish-owned banks, Hurley wrote that: "The Irish banks have negligible exposure to the sub-prime sector and they remain relatively healthy by the standard measures of capital, profitability and asset quality. This has been confirmed by the stress testing exercises we have carried out with the banks".


After the banking crisis struck at the end of September 2008 it was rookie Finance Minister Brian Lenihan rather than Hurley or Neary who seized the initiative. All of the steps taken since then to address the crisis -- the deposit guarantee, the €11bn recapitalisation of the banks, the nationalisation of Anglo, the removal of the bank bosses and NAMA were driven by Lenihan.

While Neary was forced into early retirement in January, Hurley had his term of office temporarily extended. However, the appointment of TCD professor Patrick Honohan to succeed him, breaking a 66-year tradition of giving the job to former Department of Finance bosses, marked a clear repudiation of Hurley's legacy by Lenihan.

It could be a very long time before another bookish ex-Department of Finance mandarin gets to run the Central Bank again.

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