THE Government is on the lookout for a new sheriff following this week’s announcement of the departure, next October, of the country’s financial regulator Matthew Elderfield.
The news sparked regret in official and wider media circles. Many would agree that the Englishman, who arrived here from balmy Bermuda, in Jan 2010, has left a much tidier operation behind him.
He has presided over a beefing up in the bank’s oversight capacity and flexed his muscles in a confrontation with businessman Sean Quinn. By sanctioning the appointment of an administrator to the Quinn Insurance group, amid growing concern over the quality of the claims being underwritten in its UK operation, Elderfield displayed considerable grit and did so within weeks of his appointment.
The regulator has his critics, however. Some argue that he is leaving the job with the debt crisis only now coming to the boil.
Some believe that the regulator could have exerted greater authority over the country’s banks.
It was left to his deputy, and possible successor Fiona Muldoon, to really put the boot into the banks at their annual federation shindig last year, when she famously compared them to a group of teenagers.
Not surprisingly, Elderfield’s name is mud in the border regions, where the once mighty Quinn is still held in high esteem. In such quarters, he is viewed as an unsympathetic alien who sabotaged a network of businesses vital to the local economy.
But his actions have won respect among those, both at home and abroad, anxious to see curbs being put on what appeared to be free-wheeling activities threatening further grief for the taxpayer.
Speaking at the Institute of Directors lunch in February, Elderfield accepted that the bank’s “most pressing priority” is that of restoring the banking sector so that it can contribute to economic recovery. This has involved a number of steps, the first being the transfer of troubled assets to Nama.
The current phase is that of deleveraging, or the running down of bank loan books to acceptable levels, a process which is partly completed.
In Mar 2011, independent consultants Blackrock Solutions completed stress tests described by Elderfield as “highly conservative”.
Following this, the banks were recapitalised. However, many speculate that the banking sector could need further capital infusions by the time the debt crisis has finally run its course.
The Central Bank is pressing ahead with a new round of stress tests by the year end. They were intended to dovetail with a European-wide exercise which now looks likely to be postponed until next year.
The bank is engaged in a highly complex and politically sensitive exercise. The aim is to crystallise losses and restructure debt so that banks and borrowers alike can emerge from the current impasse and begin living their lives properly again. But this will involve an upsurge in the repossession of properties, primarily buy to lets, but also family homes, in certain cases. Emotions are running high — and government TDs are running scared.
The fear of repossessions runs deep in the Irish psyche and no one in authority wishes to emerge as a latter day Earl of Leitrim figure.
The heading in an article in the Law Society Gazette by Julie Sadlier of advocacy group Phoenix Project, refers to “an impending economic and social crisis to rival the Great Hunger”.
The consumer advocate Brendan Burgess, publisher of the ‘Askaboutmoney’ blog, warns, more prosaically, that “the new plans will increase unnecessary repossessions dramatically”. He has warned that struggling borrowers on tracker mortgages could be targeted, in particular.
Concerns have been raised about a watering down in the code of conduct which has put curbs on the ability of banks to pressurise borrowers in arrears.
However, many believe that the Central Bank is correct about the need to grasp the arrears nettle.
One blogger on the Burgess website, ‘Dr Debt’ praises the bank for measures which allow banks to avoid mass debt write offs, while permitting customers to park, or warehouse at zero interest, those parts of their mortgage which they cannot make payments on. Such pragmatism is better than the head-in-the-sand approach favoured up to now.
The banks have arguably been prodded into action by the Government’s Personal Insolvency Act and bankruptcy changes which could soon leave them with no choice but to take the hit up-front if they refuse to play ball.
What is clear is that with upwards of 100,000 — close to 150,000 in some estimates — in arrears, the challenges posed by the arrears crisis can no longer be ducked.
And the bookies’ favourite to take the baton at running speed is Elderfield’s deputy, Fiona Muldoon, a straight speaker with — it appears — the backing of the governor Patrick Honohan. The odds on Muldoon were this week slashed to 7/4 by Paddy Power, putting her well ahead of the gaffe prone John Moran, secretary general of the Department of Finance, at 10/1. (Moran is shaded in the betting by department official, Ann Nolan)
Others mentioned include Catherine Woods, non-executive director An Post; and Rossa White, NTMA chief economist, late of Davy Stockbrokers.
This week Ms Muldoon hinted at her priorities in an address in Kerry.
She referred to the “sheer scale of the international banking balance sheet operating from the IFSC” and bluntly suggested that the figures for impairments “continue to make for grim reading”. The €98bn in non-performing assets demonstrate “how bloated the domestic banking sector remains”.
She appears to be a “crystalliser” rather than a “parker”, suggesting that the tackling of arrears will mean a “crystallising of losses through workout” with the bank’s capital base being “eroded in the process”.
Bank unions will not be happy to have heard her suggest that further reductions in employee numbers and overheads at banks will be required.
She also correctly identified another huge crisis area, that of smaller firms’ arrears, much of which are property related, given the huge investments by owners in extra space and in buy to lets. She is calling on the banks to segment their loan books so that they have a clearer picture of the viability of their customers. Which begs the question: why is she requesting this, five years and more into this crisis?
It calls into question her assertion that the banks “now have credible credit assessment tools”.
Elderfield departs with “a lot done, a lot more to do”. He has real achievements under his belt: a recovery in Ireland’s reputation; better corporate governance standards, including new fitness and probity tests introduced in 2010, resulting in the departure of tainted directors.
The bank has handed out some big fines, hitting AIB, Ulster Bank and Combined Insurance Corp for a couple of million each.
The organisation has been beefed up with new expertise. All to the good, but ultimately, his tenure will be judged by the handling of the debt crisis — the dismantling of this bomb will be left to his successor whoever that may be.
Cambridge University — MA, International Relations, 1988
Georgetown University — Washington DC. School of Foreign Service.
1990s - Financial lobbyist with London Investment Banking and British Banking Association.
Helped establish European operation of International Swaps and Derivatives Association.
1999-2007: Senior regulator, Financial Services Authority.
Supervised Northern Rock in the run-up to its collapse.
2007-2009: CEO, Bermuda Monetary Authority.
2010-2013: Financial regulator, deputy governor, Central Bank of Ireland.