Updated 6.04pm
THE FORMER GOVERNOR of the Central Bank has said that no one questioned the mantra of ‘we can’t let the banks fail’ in the period around the bank guarantee in 2008.
John Hurley told the banking inquiry this was the prevailing view in all institutions, saying: “You have to understand the fear that was around Europe at this time.”
In his first public comments since retiring in 2009, Hurley said two key message came from the European Central Bank (ECB), namely:
When questioned about his view of a broad bank guarantee on 18 September 2008, Hurley said it was “counter-productive” and wasn’t being proposed by the Central Bank at that time.
Hurley said: “I never felt I was lobbied in relation to a guarantee,” but added he changed his mind about it between 18 and 29 September because “in the intervening period the scale of losses of the Irish banks was truly horrific”.
At a meeting at government buildings on the night of the guarantee, Hurley said most people in the room agreed with the move, stating: “There was no dissenter.”
Hurley said nationalising Anglo would have had as big a contagion effect, if not bigger, than if the bank defaulted.
We really had no idea about how this was going to go.
Hurley said he thought legislation was ready, or almost ready, if an institution needed to be nationalised.
He said then Finance Minister Brian Lenihan “wanted to tease out the nationalisation option”, adding: “There was no overruling by the Taoiseach [Brian Coewn] in my presence.”
Hurley said Cowen was “extremely clear” on whether the banks knew they were included in the guarantee. Representatives from AIB have previously said otherwise.
The former governor said the choices on offer at the meeting were “very, very limited”, noting if action wasn’t taken the financial system “would have come down”, leading to “extraordinary implications” for years.
Hurley said the night of the bank guarantee was “a very very traumatic moment … a sobering moment”, adding: “It was pleasant for no one in the room.”
I’ve been a public servant for 46 years, I’ve headed up a number of different ministries. I thought I had seen every sort of crisis, I have never seen a crisis like this.
Earlier in the meeting Hurley said the Central Bank should have issued stronger warnings about the risks facing the economy in the years prior to the financial crash.
He said the institution’s financial stability reports underestimated the risks faced by the country’s financial system and said: “It is clear the warnings in our financial stability reports should have been much stronger.”
Hurley said he fully accepted his role in the underestimation of the crash and expressed regret for what had happened.
We didn’t expect the banks were going to implode, and the minister was never told the banks were going to implode.
Hurley said that he disagreed with the government’s fiscal policy at the time and told the then-finance minister “there’s a lot of heat in the property market” and that a lot of houses were being built.
“We suggested that fiscal policy be more prudent,” he said.
In his opening statement, Hurley said the decision to divest the Central Bank of its role as core supervisor to the newly-created financial regulator in 2003 was “a mistake”.
He later said that it was “unfortunate” that the functions of the Central Bank were split “just as the bubble was developing”.
Of the Central Bank’s role after the creation of the financial regulator, Hurley said it identified risks and held press conferences to outline these risks, but insisted:
We were not regulating financial institutions.
He said that regulation on its own could not have stopped the crisis from happening, highlighting international events.
On the bank guarantee itself, Hurley said that he had been absent from the Central Bank between July 2008 and 15 September 2008 due to a “serious illness”.
He said that he was not initially in favour of the idea of a guarantee.
However he told the inquiry that as a result of contacts with the European Central Bank, it became clear the government was expected to stand behind its banking system.
“As a result of contacts with the ECB, it was the view at the time that an overall European initiative of which Ireland might be part was remote and that any decisions in relation to Irish banks would fall to be made by the Irish authorities,” he said.
The Government was expected to stand behind its banks and a Lehman-type situation was to be avoided.
Hurley said that consideration was given to nationalising Anglo on the night of the guarantee but said: “There was a strong view on the night that the Government had one opportunity to assuage the markets.
“If the decisions taken were considered inadequate and failed the consequences for the banking system would be devastating and lead to very serious economic and social fallout for the country as a whole.
“I supported the decision taken as being the one most likely to ensure that these consequences for the banking system and the country would be avoided.”
Hurley served as governor from 2002 to 2009, when he was replaced by the current incumbent, Patrick Honohan.
Upon his retirement, Hurley, who earned some €350,000, was given a lump sump of €525,000 and a pension of €175,000.
At the conclusion of this morning’s hearings, Hurley acknowledged that “public service salaries were too high” at the time he was Central Bank governor.
- with reporting by Órla Ryan
Follow live updates from the banking inquiry on @TJ_Politics
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