Bank guarantee politics ‘astonishing’

A leading academic has described as astonishing the politics that led to the 2008 bank guarantee which covered the country’s six biggest financial institutions.

Bank guarantee politics ‘astonishing’

The professor of finance at Boston College, Ed Kane, said that a blanket guarantee — such as that extended here,with an estimated cost to the taxpayer of €40bn to date — is the easiest option politically and administratively for authorities to take. But he said is is elitist and punishes ordinary citizens.

Prof Kane said the Government should have secured a better deal for the Irish people but, as a small country, our representatives didn’t have the political clout to do so.

“Instead of other states coming to the rescue, Ireland seemed to be forced to help creditors in those other lands, like Germany. I don’t think that would’ve been the way that you would design for a crisis in a small country,” Prof Kane said.

“I think Ireland showed a lot of gumption in healing this situation for itself.

“I think they [the Irish authorities] should’ve worked a harder deal with the rest of Europe but they were not in a position to dictate terms, I guess.”

Ominously, he said that while the burden imposed on taxpayers had been enormous at a time of low interest rates, the future burden once rates rise will “shock people”.

Mr Kane was appearing before the Oireachtas Banking Inquiry where he was critical of the regulatory landscape in banking globally but admitted that he is “only a little bit familiar” with the Irish banking crisis.

Specifically, Mr Kane criticised the attitude of bankers in large banks; the interaction of business, political, and banking representatives; and the ability of regulators to adequately curtail reckless behaviour.

In the Irish context, he said Anglo Irish Bank was “clearly deserving of being nationalised” earlier and went on to say that the bank was enjoying implicit guarantees and growing at an unusually rapid rate, which should have warranted further investigation.

He added that he didn’t believe lessons had been learned from the financial crash and that the strength of political influences in the US and Europe is so strong that it will take another “crisis or two” for regulation to improve to the requisite level.

The concept of guaranteeing banks deemed “too large to fail” is inherently flawed and will continue to undermine the stability of the financial system given the expectation that, even if bankers take risks that make the ruination of their institution a possibility, they will be bailed out by the government, Prof Kane argued.

More in this section

Price info
IE_180_logo
Price info

Subscribe to unlock unlimited digital access.
Cancel anytime.

Terms and conditions apply

Budget 2022 Logo

What impact will this  year's budget have on you and your business.

The Business Hub
Newsletter

News and analysis on business, money and jobs from Munster and beyond by our expert team of business writers.

Sign up
Puzzles logo
IE-logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day. PS ... We would love to hear your feedback on the section right HERE.

Lunchtime
News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up
Revoiced
Newsletter

Our Covid-free newsletter brings together some of the best bits from irishexaminer.com, as chosen by our editor, direct to your inbox every Monday.

Sign up