New Central Bank governor to face pressure on mortgages

New Central Bank governor Philip Lane may face the challenge of an overheating housing market here and whether even stricter controls will be required to rein in home loan credit.

Finance Minister Michael Noonan yesterday named Mr Lane to succeed Patrick Honohan when he retires as governor later this year.

Mr Lane holds the Whately chair of political economy and is head of economics at TCD. More than 100 candidates were identified during an international recruitment search campaign, the finance minister said.

The appointment was in the end a two-horse race between Prof Lane, who has built an international reputation with global institutions such as the ECB, IMF, and World Bank and Robert Watt, a former international economics consultant who had huge experience of running a complex organisation in his current post as secretary general of the Department of Public Expenditure and Reform.

Prof Lane’s appointment therefore extends the new practise of appointing from outside Government departments. Mr Honohan, who was appointed at the height of the crisis had also built international academic career at TCD.

Before the crisis exposed the huge failings of banking regulation, Central Bank governors were former civil servants.

Prof Lane was known as displaying a keen knowledge of the bond market pressures facing Ireland as the bailout loomed and being a very good reader of the troika’s intentions.

However, experts say the major challenge he will have will be to face down the waves of industry and political pressure for the Central Bank to loosen its mortgage lending restrictions, as a general election looms.

The new rules restrict mortgage loans to 90% and 80% of the property’s worth for first- and second-time buyers.

Leading economists believe he will face a more severe test if the housing crisis here is not quickly resolved.

Other countries face similar concerns and international regulators may be persuaded to restrict housing credit even further, to help prevent disastrous property market bubbles emerging once again around the world.

Focus will also fall on the comments he made to the banking inquiry earlier this year, when he said a “fiscal reserve fund” sourced initially from the Central Bank surpluses could have helped to recapitalise banks.

The fund would have been different from the National Pension Reserve Fund, which had to be sold down rapidly during the crisis.

Prof Lane is well known and respected at the higher levels of IMF, the ECB, and World Bank, from his work on globalisation of capital flows, academics say. He was appointed by ECB President Mario Draghi to chair the Advisory Scientific Committee of the European Systemic Risk Board.

In late 2008, he set up, a blogging site which became a valuable forum for debate for economists as the banking crisis deepened.

Welcoming the appointment, bloggers on the site yesterday also praised Mr Noonan for naming a governor from outside Government circles.

Overseeing an institution of around 1,400 staff, his skills as a manager will be tested at the Central Bank.

“It is a signal by Government that it intends to appoint someone with an international reputation who will be met with international approval,” said a former academic colleague.


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