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Revealed: How politicians and public lost trust in Central Bank

Internal documents reveal stark warnings to new governor on need to regain standing after crash

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Governor Gabriel Makhlouf

Governor Gabriel Makhlouf

Bloomberg

Governor Gabriel Makhlouf

The new Central Bank governor has been warned of hostility and low trust towards the watchdog from both politicians and the public.

Internal briefing papers for Gabriel Makhlouf admit scepticism about the effectiveness of the Central Bank’s consumer protection role.

And the papers suggest that the watchdog’s policies on mortgage lending and non-performing loans are being confused and conflated with the root causes of the current housing crisis.

Mr Makhlouf was also presented with the findings of research that show confidence in the ability of the Central Bank to regulate has barely recovered since the financial crash of a decade ago, especially in regions outside Dublin.

The documents, which are marked for “internal use only”, were prepared to warn the new governor about what to expect in his new role.

They paint a stark picture of the challenges that remain for the regulator to regain public trust.

Public trust is low in the Central Bank, particularly outside Dublin, according to the briefing material.

“Challenges remain in building understanding and trust outside of Dublin while maintaining current levels in the capital,” it states.

The new governor of the regulatory body was told that there is little understanding among the public about what it does.

“Our current public research tells us that, while the majority of the population is aware of the Central Bank, only a minority feel they know and understand what we do,” the memo states.

The papers, obtained by the Irish Independent under Freedom of Information legislation, show how the Central Bank is aware it is isolated from policy makers and the public.

"There is a hostility towards Central Bank policy in Oireachtas committees coupled with a low trust in the Central Bank since the financial crisis," the new governor was told in a long memorandum prepared by head of communications Jill Forde.

Central Bank governors regularly appear before the finance committee where the institution and its officials often come in for sharp criticism.

Last month Mr Makhlouf made his first appearance before the Finance Committee. He had three senior officials with him.

Although he was generally given an easy time, he was taken to task for failing to turn up with the director of consumer protection.

This was despite the committee's main work concerning consumer issues such as the tracker scandal, and the likes of dual-pricing of insurance products.

In the briefing material, Governor Makhlouf was also told that there is a waning deference towards expert knowledge, and a decline in the consumption and importance of traditional media.

Trust in the Central Bank is higher in Dublin than in the regions.

"There is scepticism about the effectiveness of the Central Bank's consumer protection role and its mandate in the political sphere," the briefing material states.

Ms Forde goes on to explain that people confuse the Central Bank's mortgage rules and its strategy on non-performing loans - partly blaming these for the current housing crisis.

In his first weeks in the job, Mr Makhlouf refused to bow to pressure to ease the restrictions on mortgage lending.

He finds himself in the new role having been recruited from New Zealand where he served as treasury secretary.

A salary hike was recently approved by the Central Bank Commission, which means from next October his salary will increase by €5,700 to €292,526.

He was previously embroiled in controversy over a leaked New Zealand budget which he blamed on a cyber attack, when in fact the data had been available online.

An inquiry into the leak has been terminated and will have to be relaunched over a possible conflict of interest.

A preliminary inquiry found Mr Makhlouf failed to take responsibility for the leak of sensitive budget information and fell short of expectations in how it was handled.

However, Finance Minister Paschal Donohoe backed him, saying "Mr Makhlouf has a long and distinguished record of public service over many years".

The Central Bank adopted a tougher tone recently when its deputy governor Ed Sibley dismissed the claims of banks that they have no choice but to charge sky-high mortgage rates here.

The deputy governor said Irish banks can lend profitably while charging rates as low as 2.25pc to new customers, but still charge often unaware existing customers up to twice that level.

Typical new buyers here with a €300,000 mortgage over 30 years are paying €235 more a month than the average for the currency bloc.

Critics argue that the Central Bank's dual mandate of prudential supervision and consumer protection cancel each other out, with the consumer losing out each time.

It took the Central Bank a number of years to launch an investigation into the €1bn tracker rate scam. The issue was first reported on in this publication in 2009.

Irish Independent