The International Monetary Fund (IMF) has strongly questioned the independence of the Irish Central Bank, suggesting aspects of its internal governance structures were out-of-kilter with international norms.
In a report published yesterday, the Washington-based fund said the presence of Department of Finance-appointed officials on the bank’s internal governing commission posed a serious threat to its independence.
It also highlighted the authority of the Minister for Finance to remove a commissioner for reasons other than misconduct or incompetence as another potential risk to the institution’s autonomy.
However, despite the risks posed, the IMF concluded there was no evidence of any interference by the Department of Finance in the bank's day-to-day operations.
The Central Bank’s internal governing commission – established by the Central Bank Reform Act of 2010 – is responsible for ensuring the bank carries out it statutory functions as the State’s chief financial services regulator.
Appointees It consists of the governor and two deputy governors, the secretary general of the Department of Finance and six other members appointed by the Minister for Finance.
In total, seven members of the 11-person board are either from the Department of Finance or appointed by the minister.
The Central Bank has been heavily criticised for failing to adequately regulate the sector in the lead-up to the financial crash, in particular its failure to rein in loose lending practices by retail banks.
The IMF’s Report on Observance of Standards and Codes assessed the strength of Ireland’s banking and financial regulatory framework, and its compliance with regulatory principles set out by the International Organisation of Securities Commissions (IOSCO), the umbrella body for the industry.
Compliance Overall, it found Ireland exhibited a high level of compliance and implementation when it came to financial services.
However, it raised a number of concerns in addition to the question over its political independence, including the fact that it lacks the power to appoint administrators to investments firms which enter into financial difficulties.
The IMF said the bank does not have authority to appoint an administrator to step in and run a firm that was in crisis, nor does it have authority to take possession or control of assets held by a firm that is in financial difficulty.
The Central Bank was powerless to step in and take control of Bloxham stockbrokers in the interests of creditors and investors when it ran into trouble in 2012, something it would have been able to do if Bloxham had been an insurance company.
“The absence of these powers effectively means that the only alternative course of action available is to liquidate a company, thereby crystallising potentially significant losses for investors and delaying the investors’ access to their assets,” the IMF said.
