Time to be a little more positive about banks

THE new head of financial regulation Matthew Elderfield has outlined his plans for reforming the supervision of banks.

Elderfield, the former chief executive of the Bermuda Monetary Authority, took up his new position in January and made his first public speech to an accountants’ lunch in Dublin on Thursday.

Already reports are circulating that he has had ablazing row with some TDs and senators over their outside financial interests.

The row took place but it is not clear whether it concerned loans Oireachtas members have with some of the Irish banks that are now being transferred to NAMA or whether it was about how they report their outside business interests to the members’ committee.

That matter is said to be within the regulator’s remit but not the amount of debt or mortgages that individuals have with banks.

That the new head offinancial regulation hasalready stuck his oar into the financial affairs of members of the Oireachtas is a positive sign that he is taking his brief very seriously.

Presumably, the assumption must be that in firing a salvo at parliament, Elderfield is setting down a marker to all that he does not fear either political or commercial powers in this country.

On Thursday he said he intended to pursue a policy of “assertive” regulation backed up by the credible threat of enforcement. He said there would be a need for a “substantial” increase in resources as a result.

He stressed he would not adopt a “one size fits all” approach and more important banks should expect a much more intrusive approach than smaller financial firms.

In the case of a difference of opinion between a bank’s management and the regulator on the best approach, he would be prepared to tell the bank: “just do it”.

His strategy would include measures aimed at preventing too much lending being concentrated in one sector and he is also planning a package of measures on corporate governance, including guidelines on pay and tougher requirements for directors of financial firms.

In the light of what has gone on in the banking sector, his stance is most welcome.

But it remains to be seen whether he will get all the manpower needed to carry out these functions.

If the support is not forthcoming from the Government then the hype about introducing a tougher and more vigilant regulatory system will be just that.

The need for an organisation with teeth has been well proven by the awful mess in which the banking sector now finds itself.

There is some comfort in the fact that some shape is starting to emerge in the case of NAMA and Anglo Irish Bank.

The stakes are high, but it should be remembered that internationally our credit rating has held up reasonably well due to the fact that we have faced the hard decisions regarding the banks.

It has been argued that leaving Anglo go would have been the way to go.

But Alan Dukes, who is taking over as chairman of Anglo, said yesterday the cost to the state would be €20bn if we went down that road. While a further €6bn will have to be found to keep the bank alive, it may still not be as costly to take that course of action.

Dukes made another valid point that has been missed in recent analyses. If Anglo goes, AIB and Bank of Ireland would have a near- dominant position in commercial banking.

Merging EBS and Irish Nationwide with Permanent TSB will not produce a third commercial bank.

One final point. The chief economist of the biggest bank in the world, HSBC, endorsed the action being taken here on the banks.

It will see this country out the other end, so maybe it’s time to stop whingeing and be a bit more positive.