I thank the Chairman and welcome the Governor of the Central Bank. Does the Governor expect to come up with more questions and pointers for a further public inquiry or does he anticipate issuing findings that will analyse the crisis up to September 2008? In that context does he intend to go into the history of road marks or milestones en route to the crisis?
The Governor talked about the parallel and different natures of the inquiries that he, Mr. Regling and Mr. Watson will make. As the Labour Party spokesperson on finance, I generally sought to meet the Governor about twice a year, and also the regulator. In my meetings with the Governor from time to time I have raised issues which appeared in the public media as regards reinsurance and the Swiss Re scandal in the IFSC, some years before the crash, DEPFA and the whole business of Sachsen and what happened in relation to German banking — for which I do not believe the Germans have yet forgiven us. We may have a different view as to where responsibility lies in that regard, but in Germany it is believed that our light regulation was a major contributory factor.
In 2005The
New York Times talked about the IFSC and Ireland being the “wild west” of finance. Given that we had form in relation to those three major events — I said this to Mr. Regling, as did other members of the committee — we had Professor Honohan’s esteemed predecessor before the committee and the regulator on regular occasions and each time we were told that everything was fine. It may be that as the Governor of an institution the incumbent is nervous in talking to a parliamentary committee on anything that seems to be negative about Ireland. To be honest, it reached ridiculous lengths where the Governor’s predecessor and the regulator marched in, patted us on the head, told us to go away and that everything would be fine — even when it was very clear that the ship was sinking and we were in iceberg territory.
What relationship should the regulator and the Governor of the Central Bank have to the Dáil? Is there a role in Ireland, as there is in many other jurisdictions, for bipartisanship as regards sharing information and asking questions, including accountability requests, by a parliamentary committee which has a different life to the Executive — even if the parties in government effectively control membership of the committees, through chairmanships and so on? If questions were honestly answered, while we would still probably have problems, they would be nothing to the scale of current problems. I would like to hear the Governor's observations in that regard.
Specifically on Anglo Irish Bank and Irish Nationwide, these were at the core of the loss of Ireland's reputation and the really bad stories prior to the crash which were circulating about the country. The bubble involving the Quinn contracts for difference issue burst on St. Patrick's Day, 2008, with the massacre in share prices. Will the Governor's inquiry team go into the history of events? When the Central Bank saw the share price of the third banking institution in Ireland had effectively collapsed in spring 2008, did that set alarm bells ringing in the Central Bank? Were there people in the Central Bank who said, "There's something very wrong here", even though the Governor and the regulator had come here, subsequent to that, for a long period of time and told the committee that everything was all right? That is a scandalous part of the relationship between the Dáil, this committee and the institution of the Central Bank and the regulator.
I would also like to know whether the Central Bank gave serious advice? I know there was a considerable amount of small print warnings in the quarterly articles and so on, about the level of credit, indebtedness and so on. The former Governor, Professor Honohan's predecessor, said he believed he was not being listened to. Although the Governor of the Central Bank is an important public office with a great deal of independence, he obviously believed he had to play on the Government's side, as it were, rather than on the Ireland side, which is broader than the parties which may be currently in Government. Will Professor Honohan's inquiry address those delicate relationships? Where there is grave danger for the whole economy, jobs and employment, surely the national interest must precede the interests of the Government of the day.
When property lending was growing so rapidly, were there actions which the Governor believes could have been taken by either the Financial Regulator or the Central Bank to slow down the growth in property lending? There was the general business area, but also the issue of the 100% and 110% mortgages at the individual borrower level. Are there sufficient measures available to a banking regulator to ensure sound lending policies by the banks? This goes to the heart of the relationship between the regulator and the Governor with Government. Which comes first, the national interest or the policies of the Government of the day? Is there a quality of independence attached to the Governor's office? I thought there was. However, I came to believe that there was not because everybody sang from the same hymn sheet and there were very small print regulations on different elements of policy.
On the Central Bank's relationship with the European Central Bank, does the Governor believe that once Ireland was in the eurozone the Central Bank effectively acted as the gatekeeper for the regulation of the disciplines necessitated by being in a monetary union at a time when the national economy and the European economy were expansive and there was plenty of spare cash available from German banks for Irish banks to borrow? Some of them ended up borrowing short to lend long because of the enormous well of German money that was available. In the context of how the European Central Bank is dealing with the series of crises and the issue of imposing discipline on countries, does the Governor have a view on whether there is a role for solidarity within the ECB and among the member states? Many people in Ireland look at what is happening in Greece and what may happen in Spain. There is an issue now whereby speculators are moving against countries that are perceived to be weaker. The Governor is Ireland's representative on the ECB. Does he, as a Governor in his independent status, have a position which he contributes, or is this confined to the Government line which he takes, as it were, to the ECB deliberations?
I shall finish on this. In the United States, California has a bigger deficit than Greece or any other country in Europe but, because there is a federal system there is a degree of cover. A variety of countries are in difficulty in the EU but there is no sense of the ECB evolving a policy to deal with the down side of being in the euro when economies are contracting. Perhaps Professor Honohan's article addresses that point.
