The Central Bank misled the public about the frail state of Ireland’s financial system in the run-up to the crash, a former official in the bank has told the Oireachtas banking inquiry.
Frank Browne, who had responsibility for financial stability at the Central Bank from 2003 to 2010, has also told the inquiry that warnings issued by his team as far back as 2004 were ignored by the bank’s senior management.
The thrust of his 90-page statement, published on Monday by the Oireachtas, was rejected outright by former bank governor John Hurley and other senior Central Bank figures from that time. Warnings on the property bubble were not taken lightly, Mr Hurley insisted.
In a highly critical assessment, however, Mr Browne said the failure to recognise the misalignment in property prices in 2007 meant the the final opportunity to call a hard landing was wasted. Such a move would have focused the attention of authorities on crisis management and resolution, he said.
Empirical evidence
Mr Browne, who was not called to give public evidence to the inquiry, said in his statement that the management and board of the bank did not heed an extensive amount of empirical evidence that was presented to them.
He accused them of suppressing key information, said warnings were censored and pointed to a “biro strike” through warnings in a 2007 draft report that property was overvalued by 39 per cent.
“My evidence . . . is that economic research and analysis conducted within the monetary policy and financial stability department headed by me, pointed to a risk of a substantial property bubble in 2004, and a growing liquidity risk within the banks,” Mr Browne wrote.
“The risks and vulnerabilities from emerging imbalances in the financial system were identified clearly by those conducting research and analysis and were presented to senior management at the financial stability committee. However, they were toned down or even ignored completely by the senior management of the [Central Bank and Financial Services Authority of Ireland].”
Research was used selectively to convey externally a misleading impression of the true state of health of the financial system and crucial information did not emerge into the public domain.
‘Favourable impression’
“This had the effect of conveying to the public at large a more favourable impression of the health of the financial system in Ireland than was the reality,” he said.
“It appears to have culminated in 2007 in the suppression of important information on the underlying health of the overall financial system.”
Mr Hurley’s response to Mr Browne’s statement, also published on Monday, said dissenting views were not made known to him if they were made, despite being encouraged.
Liam Barron, former director general of the bank, also dismissed the assertions. “I categorically refute Frank Browne’s central narrative which alleges senior management of the Central Bank were warned about the problems, including the property bubble, in the pre-crisis period and ignored these warnings,” he said.
He said Mr Browne had rejected assertions by Prof Morgan Kelly in 2006 that house prices would fall by up to 50 per cent over nine years. Rather, he embraced the views of the International Monetary Fund that the experience of past housing market crashes would not be repeated.
