Banking reports a thorough indictment of financial governance, says Burton

Posted on June 09, 2010 at 06:13 PM

The Labour Leader and Deputy Leader Joan Burton TD

Never before in the history of the State have the policies of a Government been subject of such excoriating criticism as today's reports on the banking crisis from both the international panel and the Central Bank Governor. Ministers have worked overtime in the past week to extract as much favourable comment as they can from the 2 reports. All that effort is in vain because the entire thrust of both reports is a thorough indictment of the financial governance of this State over a prolonged period.

Both reports stress the 'home made' elements of the banking crisis and they dismiss out of hand the 'Lehman Defence' so often invoked by Ministers that international factors were primarily to blame for Ireland's problems. Not so, according to both reports. Mr Regling and Mr Watson suggest that Ireland had experienced a 'plain vanilla property bubble'. They conclude that there had been scope to mitigate the risks of a boom-bust cycle through prudent policies but the Irish Government had chosen to 'add fuel to the fire'.

In particular, the international examiners have highlighted how during his tenure in Finance, he stoked the building boom. He cannot escape the implications of the withering assessment the examiners have delivered of the policies he pursued and their contribution to the perilous state of the nation's finances at present.
The Regling-Watson report highlights the role played by Government tax incentives in creating and sustaining the reckless scale of bank lending for property. The Taoiseach has belatedly acknowledged his mistake in allowing these tax measures to remain in place for an extended period when it was clear that they served no economic or social purpose.

In each of the budget and Finance Bill debates from 2002, I pointed out the folly of these tax shelters and the damage they were doing both to the notion of equity in the tax code and to the overall economy by diverting investment excessively to one sector at the expense of others. As a result, the cost of doing business in Ireland rocketed and we lost out heavily in the export of goods and services. The damage done then still casts a long shadow and will take a long time to repair.

Brian Cowen claims he has withdrawn these tax reliefs but many remain in operation at an annual cost of €400 million. After this damning indictment by the international examiners it must be a Government priority to accelerate their removal from the tax code as Labour has long demanded.

Both reports offer a scathing analysis of the failures in banking regulation at critical time and the tolerance shown to banking practices that were blatantly irresponsible. While both the Central Bank and the Financial Regulator are the focus of the criticisms in the reports, there has to be accountability also from Ministers of Finance who presided over and indeed created the lax system that failed so catastrophically. The buck has to stop with Ministers, including Mr Cowen, because they had general responsibility to protect the public interest in the operation of regulatory agencies. Both Mr McCreevy and Mr Cowen manifestly failed in the discharge of their duties to the public. They allowed a situation to develop where building societies, most notoriously Irish Nationwide, broke away from the core functions and acted as lending agents for property gambles.

A full enquiry will have to examine in detail the events of March 2008 and subsequent decisions in relation to Anglo Irish Bank. In that month, the fragile state of that bank became apparent when its share price plummeted on St Patrick's Day. This was also the period of the ill fated attempt of the Quinn family to acquire a significant share in the bank through the 'contracts for difference' mechanism. Again, it is Mr Cowen who has most to explain about his action or inaction at that critical time.

On the blanket guarantee of September 2008, Professor Honohan is profoundly critical of the Government decision. In particular the inclusion in the guarantee of outstanding long term bonds and dated subordinated debt. This, he argues, 'narrowed the eventual resolution options for the failing institutions and increased the State's potential share of the losses'. In plain terms, the guarantee was too wide and too costly. It is this decision which is now resulting in such a high cost to the Irish taxpayer. He is also critical of the fact that senior managers were left in place after the guarantee was put in place.

The Honohan report makes clear that other less costly options were possible that night. An exit strategy from that guarantee later this year remains an urgent priority.

The purpose of the dual reports published today was to establish the framework of a full enquiry into Ireland's bank collapse. For that enquiry to have any credibility it must have personnel and terms of reference that can command all party support in the Dail and have full public confidence. There are many vested interests who want to hide the truth and escape culpability for their actions. To achieve that consensus, I suggest the Taoiseach and the Minister for Finance should meet with the opposition parties to agree on a joint approach to this enquiry. Ministers cannot be judge and jury of their own actions and policies.

by Joan Burton TD

(The above statement from Joan Burton TD was released through the press office this afternoon following the release of the two banking reports.)

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