Regulator ‘cannot ensure survival of banks’

The senior figure in Ireland’s banking watchdog today told a parliamentary committee the Central Bank was aware at the time of the risky behaviour of Irish banks that would later plunge the country into turmoil.

However, Tom O’Connell, assistant director general of the Central Bank and Financial Services Authority of Ireland claimed it was not the role of a banking regulator to prevent banks who made bad decisions from going to the wall.

“No regulatory system can or should ensure that all banks should survive,” he said.

“Banks that make bad decisions should pay the penalty and that’s what they’ve done.

“Despite the fact the media say the banks are being bailed out, the banks are not being bailed out.

“The banks’ shareholders have lost their shirt. Anglo-Irish (Bank) shareholders hold nothing, the other banks have lost 90% of what they had and that’s the way it should be.”

“If the banks don’t reform adequately, it’s the shareholders who should be there to discipline them.

“If they don’t do that, they take a hit, and they have taken a massive hit here.”

He then clarified that the reference to shareholders was in the context of institutional investors and not to small shareholders or individual investors.

It was also stated that, in practice, the small shareholder is realistically not in a position to monitor bank behaviour and in this regard it is up to the institutional investors to exercise their own appropriate oversight.

Mr O’Connell also argued the Central Bank did not have the power to “contain the exuberant behaviour of the banks”.

The setting up of the State’s “bad bank”, the National Asset Management Agency (Nama), should put Irish banks back on course to business as usual, he said.

Nama is expected to be established later this year, and will buy toxic loans, mainly for developments that collapsed in the property crash, from the country’s main banks.