Analysis: Central Bank needs to probe all bank credit committees

By Eamon Quinn

A fine of €20,000 for Michael Walsh, the former non-executive chairman at Irish Nationwide during the boom years, and a three-year ban on his managing a financial firm were the eye-catching items of a Central Bank settlement agreement this week.

The Central Bank said the fine of €20,000 compared with the maximum penalty for breaches under its old regulatory regime of €500,000 “for a natural person”. Mr Walsh resigned from Irish Nationwide in early 2009.

A settlement involving sanctions and a fine between the Central Bank and an individual holding a top banking job during the boom years is a rare thing in Ireland. The settlement was announced in the language old-time Kremlinologists would struggle to crack.

The item that should have grabbed most attention was the admission by the Central Bank that the settlement took into account Irish Nationwide’s “credit committee’s failure to function in accordance with [Irish Nationwide’s] internal policies”.

Asked about credit committees at other lenders, a spokesman for the Central Bank told the Irish Examiner it does not comment on its enforcement investigations, “whether ongoing or potential”.

The development could be highly significant — but only if the Central Bank plans to probe the workings of other credit committees at the big lenders during the boom

years

.

Of the €64bn-plus that taxpayers pumped into all banks, Irish Nationwide, despite its high profile as a building society in lending to property developers, was a relative minnow in terms of its bailout costs: It got €5.4bn of the public’s cash.

After all the reports and internal studies, the public still knows little about the reasons that across all the banks, all the credit committees — responsible for safeguarding our banks— all failed at the same time to do their job.

Instead, they inexplicably sanctioned tens of billions or euro worth of loans to small groups of property developers. The report of the Oireachtas banking inquiry, published just over two years ago, didn’t effectively get under the hood of who approved the decisions of credit committees.

Other reports included a study in May 2010 by former Central Bank head Patrick Honohan into the Central Bank’s role in the crisis. Studies have been general in nature, attributing blame to a culture of property speculation or lax regulation, and have notably avoided attributing blame to individuals.

One report investigating the causes of the Irish banking crisis was published in May 2010, co-authored by Klaus Regling, who now heads up the European Stability Mechanism, the eurozone’s bailout fund.

Other reports include one by a former Finnish government official Peter Nyberg, in March 2011, and a report on the Department of Finance’s role during the crisis, also released in March 2011. 

If the lessons of the past are to be learned, the Central Bank needs to probe the mechanics of the boom-time credit committees.

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