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Reckless bankers must be punished, expert tells inquiry

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Anglo Irish Bank

Anglo Irish Bank

Anglo Irish Bank

BANKERS who pick the pockets of taxpayers must be shamed, a financial crisis management expert told the Banking Inquiry.

Prof Ed Kane, the man who coined the term "Zombie Bank", said ways had to be found to punish individual bankers and higher officials known to have condoned reckless banking practices, or there would be similar wrongdoing in the future.

The professor of finance from Boston College also said Anglo Irish Bank should have been nationalised earlier, and warned that the ECB could easily over-stretch itself with "catastrophic" results.

Prof Kane said his understanding was that Anglo enjoyed implicit guarantees as it took losses. This meant it continued to take risks until it was finally taken over.

He was adamant that the entire banking crisis had been caused by bankers who routinely abused the rules without suffering personal penalties.

The system, he said, was "elitist" in that it treated bankers like "some kind of high priests".

It was not enough to embarrass those who had behaved recklessly - there had to be a system of punishments.

Financial penalties were not the answer as it was about changing the system as "the whole idea is to stop behaviour, not collect money".

astonishing

Comparing banking regulation to traffic regulation, he said: "Banking crises occur because banks abuse the financial rules of the road, without suffering meaningful personal penalties.

"If systems for supervising traffic flows were as distorted, elitist and slow to respond as those for supervising banks, ordinary citizens would be afraid to venture out of their homes."

Asked about blanket guarantees by Pearse Doherty TD, he said this was "the easiest thing politically", but it punished the ordinary citizen.

His superficial understanding of Ireland was that a lot of foreign creditors were paid off with taxpayers' money and this was "astonishing to me".

Blanket guarantees resolved an immediate crisis, but after that you have "got to roll it back".

They usually had a short phase and then could be adjusted.

He told inquiry chairman Ciaran Lynch: "The thing that worries me about all this is that the authorities never admit their mistakes. Instead of owning up, they glorify what was done."

hnews@herald.ie


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