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Bank bailout has cost taxpayers €40bn so far - Central Bank Governor


Central Bank governor Patrick Honohan is giving evidence to the State's parliamentary banking inquiry

Central Bank governor Patrick Honohan is giving evidence to the State's parliamentary banking inquiry

Central Bank governor Patrick Honohan is giving evidence to the State's parliamentary banking inquiry

Ireland's crippling bank bailout has cost taxpayers an estimated €40bn to date, the Governor of the Central Bank of Ireland has revealed.

In his first day of evidence to the State's parliamentary banking inquiry, Patrick Honohan said the actual cost - after banks pay fees and with the State selling shares in rescued institutions - will drop from the original €64bn pumped in.

The Governor told the hearing that more consideration should have been given to liquidate rogue lenders Anglo Irish Bank and Irish Nationwide in September 2008 rather than including them in the mammoth €440bn guarantee of the banking system.

"The best estimate is around €40bn," Mr Honohan said.

"In terms of net long term costs taking into account the recoverable amounts, the amounts paid in guarantee fees and taking account of when the Government sells shares in the banks.

"There are so many ifs and buts you could spend all morning on it."

Mr Honohan compiled a report in 2010 for the Irish Government attempting to explain why regulators did not spot the looming banking crisis in Dublin and attempt to prevent it and what the best containment measures would have been.

The Governor told the inquiry that he stands by his 130-page report and that the regulation system at the time of the crash in 2008 in Ireland was one of "a triumph of hope over reality".

In his opening address he said: "No regulatory system can or even should attempt to eliminate all possibility of failure, and regulation and supervision must be able to change with a constantly changing financial industry.

"But I think the more assertive and risk-based system of prudential supervision that we now have in place has struck the right balance and will help ensure that the banking system helps the economic performance of Ireland, rather than causing the economic destruction which we have all been seeking to repair and rebuild."

Ireland's bank guarantee from September 2008 covered customers' deposits and bank borrowings in all the major institutions.

The Oireacthas Banking Inquiry is holding a series of hearings in an attempt to uncover the reasons the mammoth blanket security was given and the failings in the regulatory and political systems at the time.

The European Central Bank has so far refused to take part in the inquiry.

Taoiseach Enda Kenny revealed late last year that he had pressed banking chief Mario Draghi to attend and answer questions over its role in Ireland's bank bailout.

The ECB president had said that he would not answer to national parliaments despite questions remaining over the tone and content of a letter to the Irish Government threatening to withdraw emergency funding from the Irish banking system in late 2010.

Mr Honohan revealed the possible extent of a bank rescue involving the International Monetary Fund (IMF) in 2010 in a phone call to RTE Radio three days before the Government made a formal application for funding.

Committee members have been warned not to raise the phone call at today's hearing.

Mr Honohan told the inquiry that Anglo should have been allowed to fail and that it was effectively dead by Monday September 29 2008 when the bank guarantee was unveiled.

He said regulators should have known it was bust but that the Government would have been pilloried and would have been treated as a pariah internationally if it was liquidated over the course of a weekend at the time.

Mr Honohan said that allowing Anglo to fail then would have been a "European Lehmans", an assessment he has given in the past.

The Governor also told the inquiry that his investigations have not uncovered any correspondence or information which suggests the €440bn guarantee was ordered by the European banking regulators.

"I have no evidence whatsoever. I don't believe it to be the case that the ECB asked the Irish Government to guarantee the banks," he said.

Mr Honohan described Anglo in September 2008 as having a "business model that was not credible" and that it had "run out of cash" and that government or regulators should have stepped in to shut it down.

"The management should have been removed," he said.

"I think that decision should have been taken at that time (after the bailout) though I would have left it to the weekend to manage the situation - don't do it on a Tuesday night."

The Governor, however, expressed sympathy for the "people in the room" on the night the bank guarantee was agreed.

Under pressure over who was calling the shots on the night of the bank guarantee, Prof Honohan suggested that the late Brian Lenihan, finance minister at the time, did not get his way.

"What I know from conversations ... he agreed with the idea of an overall guarantee but he also thought that INBS (Irish Nationwide Building Society) and Anglo should be nationalised there and then," the professor said.

"He argued strongly not to go down to cover the subordinated debt - that's what he told me."

Prof Honohan said he had been told that Mr Lenihan was overruled during the intense, late-night talks with bankers, regulators and advisers on how to deal with the imminent banking collapse.

Only then taoiseach Brian Cowen and then attorney general Paul Gallagher were in more senior political positions at the negotiating table, the inquiry heard.

"We are not supposed to talk about individuals but he was not the senior politician. It was probably the weight of advice around him as well. There was also the practical issue - Monday night, what are you going to do? Have you got all the tools ready? Sort of, but it's going to be messy.

"I think he backed down from that with the expectation that we will struggle to the end of the week and, sure, then we will nationalise.

Prof Honohan said: "I don't want to be on television naming people.

"The Taoiseach and the AG were present and they are the only other political people who were present."

Mr Honohan also told the inquiry that he feels the threat of burning some bondholders - investors and lenders who lent in the region of €2bnto Anglo - should have been used on the night of the guarantee.

The professor said he did not want to blame people who were at the negotiating table as they were not aware of the full extent of the Anglo debt.