Business Irish

Thursday 24 January 2019

Watchdog warned 'to wake up' before crash

(Stock picture)
(Stock picture)

Gretchen Friemann

The former chairman of the now defunct Irish Nationwide Building Society, Dr Michael Walsh, says he pleaded with financial regulators "time and time again" to "wake up" to the mounting distress signs in global financial markets as far back as 2007.

Appearing as a witness at the Central Bank's ongoing inquiry into alleged regulatory breaches at the Society, the former professor in banking and financing at UCD yesterday accused the State's financial watchdog of "harking back and rewriting history" in 2008 when it was too late rather than focusing on what needed to be done

Dr Walsh, who was appointed non-executive chairman in 2001, gave evidence after he accepted a fine of €20,000 from the Central Bank in February as part of a settlement that excludes him from any further investigation by the inquiry.

He has also been disqualified from managing any regulated financial services firm for a period of three years. In a statement, the Central Bank said the sanctions "reflect the seriousness with which the Central Bank regards these issues" and stated Dr Walsh was reprimanded for the Society's failure to provide reports for commercial lending and credit risk management to its board.

The move left the inquiry focused on four senior management figures including two former executive directors, managing director, Michael Fingleton and finance director Stan Purcell; as well as INBS's head of commercial lending, Tom McMenamin, and former head of UK lending, Gary McCollum.

In his evidence, Dr Walsh described "frustration" and "irritation" among the non-executive directors at the failure by management to implement key reforms aimed at strengthening credit controls in the Society.

He claimed the non-executive members of the board were told changes, recommended by external auditors KPMG and the regulator, had been implemented but it turned out "time and time again" the reforms might have been "done once but then it would have lapsed".

In 2007 the regulator found INBS's credit committee had not been assessing credit reviews on top borrowers, contradicting repeated assurances to regulators. Dr Walsh was asked by Niamh Hyland, a member of the inquiry's Legal Practitioner Team, why the issue had "not been remedied" after it had been raised to a status of high priority by the regulator.

Dr Walsh said the board relied on assurances from the executive directors.

He argued, when asked to what extent non-executive directors are entitled to depend on the word of executives, "that corporate governance would never work if you could not rely on the executive". He said: "If you believe that they are unreliable or dishonest, you have only one choice and that is to remove them." But he added: "There was never any suggestion of dishonesty ... so by definition you accept their word."

Irish Independent

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