Dáil Éireann debate -
Tuesday, 25 Jun 2002

Vol. 553 No. 5

Written Answers. - Banking Regulations.

Olivia Mitchell

Question:

103 Ms O. Mitchell asked the Minister for Finance if he has received a report from the Central Bank on the implications for regulatory supervision of the Allfirst debacle; and if he will make a statement on the matter. [14433/02]

Seán Ryan

Question:

122 Mr. S. Ryan asked the Minister for Finance if he has received the promised report from the Central Bank on legislative changes which may be required governing banking supervision, arising from the investigation into the reported fraud of $750 million in a US subsidiary of AIB, Allfirst; and if he will make a statement on the matter. [14502/02]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 103 and 122 together.

Deputies will recall that as soon as I became aware last February of the events at AIB's US subsidiary, Allfirst Bank, the Central Bank was asked to provide a report, on the completion of its investigations, as to whether it considered that any changes to legislative provisions governing banking supervision might be required. I have now received the bank's report in the matter.

Deputies will also recall that the primary regulators of Allfirst's activities are the US Federal Reserve Bank and the State of Maryland Banking Regulator. When the crisis emerged last February, two officers of the Central Bank of Ireland travelled to the headquarters of Allfirst and worked with officers of the Federal Reserve to confirm the scale of the losses and to find out why procedures failed to identify a serious problem in good time.

A major investigation was also conducted by AIB Group, directed by Mr. Eugene Ludwig, former US Comptroller of the Currency, and its report was published on 14 March last. It identified a major breakdown in internal controls and management oversight in Allfirst and in the oversight of Allfirst by AIB.

As a result of these findings, regulatory action has been taken in the US in relation to Allfirst and AIB by way of a published written agreement. This requires Allfirst and AIB to perform certain actions and to address the findings from the investigations. AIB is required to provide the US regulators and the Central Bank with progress reports on a regular basis.

What has emerged from these investigations is that the problem in question was not the result of legislative deficiencies but rather was due to internal weaknesses in procedures at Allfirst in the US. The Central Bank has confirmed that it has sufficient statutory authority to allow it to work closely with the US authorities in regard to supervisory issues. It also has sufficient powers to require AIB to carry out procedural changes both in the US and at group level.

In the circumstances, the Central Bank considers that it is not necessary to recommend any changes to legislation in the area of supervision at this time.

I am informed by the Central Bank that it will continue to work with the US regulators in relation to Allfirst and to monitor the criminal investigation in progress. If that work or the Central Bank's own examinations of credit institutions here suggest the need for legislative change, the bank will bring the matter to my attention.