WHAT would you give a man who has been secretary general of three government departments, including the Department of Finance, a man who in local bureaucratic terms has had everything?
In the case of John Hurley, the final gift from the governing political class he served so faithfully came in the form of a long spin in charge of the Central Bank, along with a stint on the governing council of the European Central Bank, perched high up in the clouds above Frankfurt.
Hurley’s job as governor from 2002 was to preside benignly over a light touch financial regulatory system. He would later be tasked with helping to secure a ‘soft landing’ after a boom.
Well, things did not quite go to plan and by the time Mr Hurley finally broke cover, last week, the buzzards were hovering. We were being gifted insights into the mindset of a top Irish mandarin, a man with 46 years’ service under his belt. Up to now, Hurley has been viewed as the one who got away, slipping away while leaving the hapless and befuddled regulator, Pat Neary, to take the rap.
The members of the banking inquiry put their questions. Some concerned the bubble and its origins. In Mr Hurley’s view, “we [at the Central Bank] dealt with the macro. The micro aspects were for the regulator.”
In other words, officials in Dame St concentrated on the commanding heights of the economy while the regulator looked after the High St. “Our contacts changed significantly after the creation of the Financial Regulator,” said Mr Hurley.
He rejected a suggestion from Joe Higgins that he was seeking to “dump responsibility for the excesses of the banking sector onto the regulator” yet insisted that “we were divested of responsibility for regulation”.
The former governor argued that, at times, they lacked the necessary legislative tools. “We were on the edge of our legislative powers when the crisis hit.” Yet, he did have legislative tools available, a power to issue guidelines to the Regulator under section 33 of the 1942 Central Bank Act and powers under the 1971 Central Bank Act, to require banks to maintain adequate reserves.
According to Hurley, “the old powers would not normally be used”. The Central Bank relied on the 2003 Act establishing the new system. Why did he not rely on pre existing powers? He was pretty vague on this. Revealingly, he said : “I wouldn’t get hung up on the legalities.”
Was the governor, with all his experience as a willing civil service implementer of the policies of his political masters, really the right man to try and rein in the runaway horse that the Irish economy had become? Compare and contrast with his predecessor, TK Whitaker, who regularly intervened as Governor to ensure that lending did not get out of hand. Hurley lacked the right skilled people for the task of regulatory control, as did the Department of Finance and of course, the regulator.
Senator Sean Barrett observed that just 32.5 staff equivalents at the Central Bank out of a workforce of 1,200 were employed by the Supervision department at the time, while just three people at the Financial Regulator were assigned to AIB and Bank of Ireland, each of which employed 200 people in their audit teams. The former Governor accepted that the timing of the establishment of the office of regulator was “unfortunate” coinciding as it did with the build up in lending. But was this really a coincidence? The Central Bank could merely issue “broad guidelines”, he stressed.
Senator Marc MacSharry, son of former finance minister, Ray, touched on the relationship between the bank and the Government in his questioning. Hurley was keen to stress that relations were tip-top. No pressure, then, to ease off on banker, or property developer friends, apparently. He recalled going to the Government in 2004 to get them to look closely at the property tax incentives which were pouring fuel on the asset inflation flames. The Government responded by getting in consultants (Peter Bacon & Associates). The governor recalled being “very pleased”.
“Overall we thought that fiscal policy was too pro-cyclical,” (expansionary), he said, while adding that he “got a fair hearing from the minister”.
By the end of 2005, the rot was spreading. In the Governor’s view, however, the escalation in property prices was “reducing somewhat”.
It came as a surprise to him, then, when activity rebounded in 2006, with home completions reaching 93,000. Senator Susan O Keeffe put to him the testimony of Prof John FitzGerald and in particular, the latter’s regret that he had not examined more closely the data on bank lending at the time while relying instead on the Central Bank. Hurley expressed “surprise” at FitzGerald’s comments. When Northern Rock collapsed in September 2007, were the warning bells ringing? Hurley insisted that they were on the case, that lots of meeting and discussion fora took place. But, it seems pretty clear that precious months were lost in the run-up to the night of the guarantee as the ship of State cruised towards the rocks.
Well before the night of the infamous guarantee, the game was up. By September 2008, across Europe, it was a case of every man for himself.
By the night of the guarantee, the decision makers were forced to respond in near panic as the animal packs from the financial markets threatened to tear Ireland apart. Hurley recalled that, at the time, there were clear messages: Europe could not have a Lehmans Bank (collapse) and each country had to stand behind its banks. “It was a situation of extraordinary volatility. If our banking system had collapsed, the country would have taken decades to recover.”
When other institutions sought information on a fast imploding (and exploding) Anglo Irish Bank, Hurley felt he could not oblige.
“As Governor of the Central Bank, I can’t talk to other banks about the specific internal affairs of a bank.” Business as usual, in a sense then, but really business had not been as usual for a long, long time.
The sad truth is that Hurley, no doubt a willing and hard working servant of the State, was ill-equipped, for his core task, that of standing up to a boom-era Government that came to put short-term electoral considerations ahead of the welfare of the Irish common weal.
Many months before the night of the guarantee on September 29, 2008, the Irish goose was well on its way to being cooked and Hurley was simply an ordinary chef way out of his depth in a sweltering kitchen.
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