Updated 3.55pm
THE MAN CHARGED with keeping tabs on the banking sector before its spectacular collapse said the authority became more like a “service provider” than a “detached, strong regulator”.
Former Financial Regulator Patrick Neary today said he was “deeply sorry” for the agency’s failure to deal with the “challenges” the banking crisis posed.
But he also pointed the finger at other agencies for wrongly predicting the economy was in for a soft landing.
Neary told the Oireachtas banking inquiry “the authority’s decisions reflected the economic and growth forecasts from the Central Bank which it was obliged to follow”.
These predicted a soft landing and if that prediction had been fulfilled, there would not have been a banking crisis.”
He said growth in borrowing stemmed from the appetite for property and that was fuelled by a number of factors including the “feel-good-element” of increasing property values.
‘Authoritative sources’
Neary added a “further and extremely important factor” in driving the boom was the consistent stream of “very positive economic commentary” coming out of the ESRI, Central Bank and Finance Department.
In formulating its strategy, the authority always took full account of the output of these authoritative sources, which predicted that the Irish economy would continue to show growth above the EU average and that the property market would experience a soft landing.”
Neary was appointed chief executive of the Financial Regulator in 2006 after a long career in the Central Bank. He retired in early 2009 with a one-off payout of €630,000 on top of his annual pension of €143,000 a year, later reduced to €114,000. Asked about his departure, Neary said nobody ever asked him to resign.
When asked if the regulator’s “light touch” approach to overseeing banks helped trigger the crisis, Neary said the lenders “should have known what they were doing”.
They should have been able to grant loans and make sure they were properly secured and being repaid. That’s the very least that you would expect them to do.”
‘When push came to shove’
However Neary later admitted the regulator could have introduced limits during the property boom that would have put a cap on banks’ reckless lending, which at its peak reached €440 billion – nearly three times the size of the total Irish economy.
“Very few people would dispute that a far more intrusive form of regulation was required,” he said.
I think that when push came to shove the regulator, if it had set that limit … if it had really, really set a hard, well-defined limit I think we would have been able to bring some control to the situation.”
“I accept that the system of regulation allowed those (reckless) elements to develop.”
Some banks were running at nearly twice the limits set under one of the regulator’s core moves, putting in place guidelines designed to stop lending becoming too concentrated in certain markets, the inquiry heard.
But in response to those breaches, the authority only sent letters to the banks – which the lenders effectively ignored.
“It was a guideline that had we found a way to make it stick would have been useful,” Neary said.
And Oscar Wilde…
Fine Gael TD Kieran O’Donnell, paraphrasing Oscar Wilde, said:
This was left to run unchecked for six years. One year may be unfortunate, two years would be careless, but three and four and five and six years…”
But Neary said the authority’s work was done based on an EU-wide policy that everyone now knew “just wasn’t a very good directive”.
“It was a period where I bought into a system of regulation that didn’t work, the system failed and I regret that,” he said.
The guarantee
Neary also told the inquiry that, when it came to the night of the banking guarantee, he was called in to government buildings to provide an update on banks’ financial position.
We advised the meeting that on the basis of the information available to the authority, all banks were in compliance with their required capital ratios, were in a position to meet their obligations on a going concern basis, but liquidity was becoming a critical issue for them, especially Anglo,” he said.
Neary said he was later called back into the meetings to look at the options of either nationalising Anglo and guaranteeing the remaining banks, or extending a blanket guarantee to all lenders.
He said he and the authority’s chairman were “inclined to favour” any guarantee being extended to “all banks concerned in the same manner”.
Neary later told the inquiry that he did not have any evidence at the time to suggest that any of the six main banks were insolvent.
Prime Time
Neary was also asked about his now-infamous appearance on Prime Time on 2 October 2008, just days after the guarantee announcement.
During the course of the interview he said Irish banks were among the best capitalised in Europe.
He said today that he made those remarks with the information available to him at the time but that “subsequently matters emerged”.
“The facts I had at my disposal was that the banks were in full compliance with their capital requirements,” he said.
- additional reporting from Hugh O’Connell
First published 10.29am
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