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News : Irish Economy Last Updated: Jul 25, 2014 - 11:37 AM


Irish Banking Inquiry: Advisory group says begin crash saga 20 years ago
By Michael Hennigan, Finfacts founder and editor
Jul 24, 2014 - 7:33 AM

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Government Buildings, Dublin, where shell-shocked policy makers gathered on September 29/30 2008, to save Anglo Irish Bank from imminent collapse.

Irish Banking Inquiry: The advisory group to the Oireachtas (parliament) committee that was recently established to examine the causes of the banking crash and the issue of a state guarantee of the banking system in September 2008, have recommended that it look back 20 years to discover the origin of the disaster and the “build-up and night of the bank guarantee” along with the “role and influence of international organisations.”

Trawling back 20 years may fill gaps in the history and find some scapegoats like the euro and organisations such as the IMF and OECD, but what we know six years from the crash is that not much has changed:

Finfacts:Celtic Tiger RIP: Change in conservative Ireland six years after crash

“The group has discussed a broad scope for the inquiry, for example reflecting the fact that a number of issues arising in the banking system go back to before the early 2000s and in fact it may be necessary to look back to the mid-1990s to uncover answers to some of the questions,” a  report from the advisory  group said, according to The Irish Times.

Ciarán Lynch TD said in a statement: “The report provides a possible conceptual framework for the inquiry. This framework draws on questions raised by members of the Committee and by members of the group. These suggest three broad modules:

  • Banking systems;
  • Regulatory and supervisory systems; and
  • Crisis management systems & policy response.

“A context module is also envisaged. Within each module, a number of sub-modules are suggested."

On transparency, the Houses of the Oireachtas Communications Unit with Ciarán Brennan as the contact, updated a press release on the Oireachtas website on Wednesday with no link to the report and neither is there a link on the Committee of Inquiry into the Banking Crisis page; the press release was also emailed without attaching the report.

If I was a cynic I could say the 20 years evokes 'Rip Van Winkle' the story by Washington Irving (1783-1859), the American writer, on a well-meaning man who spent two decades asleep.

Maurice O'Connell, central bank governor,told the Oireachtas Committee on Finance and the Public Service in early 1997: "There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders."

This was two years before the launch of the euro.

He said the Bank had warned financial institutions repeatedly of the dangers inherent in high rates of credit growth and any relaxation of lending standards.

In the following years, as Charlie McCreevy, finance minister, stoked the property boom with income and capital tax cuts coupled with a massive expansion of property tax incentives, the annual reports of the Central Bank chronicled the letters that were sent by the governor to the financial institutions, pleading for prudence.

In April 1999, the governor had issued a letter stating that an analysis of practices had shown that some lenders had no evidence as to how borrowers came by the balance of their money. The governor criticised what he called, the particularly disturbing practice of allowing large amounts of the borrowers after tax income to go towards paying off a mortgage.

The 1999 annual report notes: "Institutions were...advised that it remains vitally important for them to take a medium term perspective and to reckon with the potential consequences of rising interest rates and a return to lower rates of growth in the economy. All institutions gave assurances that there would be no slackening in prudential lending standards."

In April 2000, BusinessWeek, the US magazine, quoted the governor: ''There's no monetary policy prescription for the problems of the Irish economy.''

...and on the saga will go but with little suspense.

The advisory group has the following members:

1. Pat Casey, Principal Officer (Department of Finance)
2. Paul Gorecki, Adjunct Professor of Economics, Trinity College Dublin (Research Affiliate ESRI)
3. Megan Greene, Maverick Intelligence
4. Cathal Guiomard, Economist, former Aviation Commissioner for Ireland.
5. Conor McCabe, Research fellow, UCD School of Social Justice
6. Colm McCarthy, Economist
7. Seamus McCarthy, Comptroller and Auditor General
8. Rafique Mottiar, Consultant Economist (Central Bank)
9. John Shaw, Assistant Secretary (Department of the Taoiseach)

Prof. Morgan Kelly of University College Dublin and Brendan Keenan, Group Business Editor of Independent Newspapers on Sept 30, 2008, the day the State bank guarantee took effect. Kelly in a stunning tour de force, accurately presents the enfeebled state of Irish banking:

"Irish banks are resilient and have good shock absorption capacity to cope with the current situation" - - Patrick Neary, chief executive, Irish Financial Regulator,  September 19, 2008: - two days after the collapse of Lehman Brothers , the US investment bank.

Two weeks later, the Irish Government guaranteed all the deposits and liabilities of six Irish financial institutions. On October 02, 2008, Neary appeared on RTÉ's Prime Time television programme, and in possibly the most bizarre performance by a public official on Irish television, since its launch in 1961, said that bad lending by Irish banks had nothing to do with the current international crisis which was all about liquidity. He said the banks had plenty of capital to absorb any losses on property loans and he did not believe that over-exposure to the property market was a weakness of the Irish banking sector.

    

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