BANKING CRISIS:IRISH BANKS were guilty of incompetence and illegality and there was a public hunger for prosecutions to be initiated, Green Party chairman and finance spokesman Senator Dan Boyle has said, in a sharp attack on standards in the financial services sector.
There might even be more shocking revelations ahead, he told the MacGill Summer School at Glenties, Co Donegal, yesterday, claiming that many within the financial services sector could not be trusted to observe ethical norms of behaviour.
He described meetings between senior members of the Greens and representatives of the banks prior to the current crisis where, he claimed, his party’s concerns were dismissed out of hand.
Mr Boyle said that, prior to joining the Government in 2007, he and his party colleagues Eamon Ryan and Trevor Sargent, both of whom are now Ministers, had a number of meetings with the Irish Banking Federation.
“At these meetings we expressed our concerns at several of the goods and services being offered by Irish banks: 100 per cent and 110 per cent loans were being offered to customers without reference to past standard lending ratios.”
These loans would end up “pump-priming an already overheated housing market” and would “sow the seeds for creating an environment of ever-growing defaulted loans”, he said. “The response to our concerns was that we didn’t understand banking and that everything was rosy in the garden.
“In retrospect what was really worrying about these meetings was not that we were asking the right questions and being proved right subsequently, but that the Irish Financial Services Regulatory Authority was not asking these questions and was certainly not in a position to act on questions they were not asking.”
He also described another meeting he and Mr Sargent had with the chief executive of Bank of Ireland, which he said was an “insurance exercise on the part of the bank” to pre-empt the prospect of the Green Party being in government.
“It was civil enough in itself but Trevor was later to receive a very angry phone call from the chief executive concerned. The reason for the tirade was that we had failed to inform him of our manifesto commitment to re-introduce a bank levy, even though this would have been well-known.
“The irony being of course that subsequent bank levies by way of legislation on bank guarantees, recapitalisation and the imminent National Asset Management Agency bill, now cannot be avoided by that and other banks.”
Continuing on the topic, Reforming and Regulating the Banks, Mr Boyle said: “Whether it has been the overemphasis on property loans with the widespread use of personal guarantees; the scale of directors’ loans; the avoidance of annual reporting procedures; the use of clients to buy stocks to artificially bolster share prices: we have all become familiar – over-familiar – with the Byzantine world of Irish banking.”
Prof Patrick Honohan of Trinity College Dublin said there was little doubt that the Government decision to guarantee Irish banking liabilities at the end of September 2008 was “the correct immediate containment response”. He proposed a “two-part payment mechanism” for the National Asset Management Agency in its transactions. “Nama would pay the bank, for loans of uncertain value, only a small part in cash, well below the realistic best estimate of the net amount they will actually recover. And then, in addition, a sweetener: an equity stake in Nama’s recoveries for the bank’s shareholders, not for the bank – the bank stays out of this – but the bank’s shareholders, in case their future recoveries are better than expected.
“This strategy (‘Nama 2.0’) ensures that the taxpayer does not pay too much. It would separate the bad loans from the bank, while sharing the pricing risk fairly between taxpayer and shareholder,” Prof Honohan said.
Former finance minister Alan Dukes said the problem in the Irish banking sector was created by “an excessively exuberant approach to lending into the property sector during a period of sustained growth”.
It didn’t have much to do with “the more arcane and more toxic instruments that have caused so much of a problem” in other jurisdictions, “but that problem is important to us, because our misfortune lies in the fact that we are having to deal with our own self-generated problem at a time when all the other banks are dealing with this other issue, at a time when we need credit to sort out our problem, where the supply of credit has dried up because of the things that have happened elsewhere,” Mr Dukes said.
