Monday 22 January 2018

Bank Guarantee an 'own goal that sank an entire nation' - expert

Professor Bill Black. Picture: Tom Burke
Professor Bill Black. Picture: Tom Burke

Clodagh Sheehy and Daniel McConnell

The 2008 Bank Guarantee "sank an entire nation" and was the "most destructive own goal in history", an international banking expert has told the Oireachtas Banking Inquiry.

Outspoken US regulator Prof Bill Black also said the inquiry was "fundamentally flawed" because it could not report on the real causes of Ireland's banking crash.

Constitutional limitations and fears of jeopardising ongoing cases were fatally damaging to the credibility of the inquiry and the wider Irish system of justice, he said.

"Imagine you weren't able to investigate the causes of plane crashes. A lot more planes would crash. Many of these things appear to be legacy issues of the old days with the Brits," he said.

Prof Black, who specialises in white-collar crime and public finance, is an Associate Professor of Law and Economics at the University of Missouri-Kansas City.

He warned the inquiry that we were still vulnerable to the practices that caused the crisis and that financial regulation had not been sufficiently transformed to protect us.

Referring to the Bank Guarantee as "an insane decision", he insisted that the inclusion of subordinated debt had made the Irish response the worst in history. "To my knowledge, nobody ever did that.

"Nobody responded as stupidly as the Irish government. By giving an unlimited guarantee, they turned a banking crisis into a fiscal crisis." Stressing the point, he added you would "never ever, ever bailout subordinated debt holders".

The bank guarantee was the result of "truly, truly terrible anti-regulation", with regulators saying it was only a temporary liquidity problem and the government must act within hours.

During the public hearing, Prof Black listed the four key ingredients of a recipe for disaster - growing like crazy, terrible quality loans, extreme leverage and no meaningful loss reserves.

He said the greatest risk to a bank was its chief executive and they almost always "cause catastrophic losses".

Asked by Sinn Féin's Pearse Doherty about the concentration of lending at Anglo where 20 individuals had 50pc of the loans and at Irish Nationwide 25 people had 51pc, he responded: "I have never seen a concentration that high anywhere in the world at any time in history."

The committee also heard from Mario Nava, Director for Regulation and Supervision of Financial Institutions at the European Commission.

He told the inquiry: "We realised that when the crisis came we had many things to do and certainly we have done many things."

The EC had tightened rules by introducing 41 pieces of new legislation in five years.

Irish Independent

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