Decades to recover without guarantee, claims Hurley

Ireland would have taken “decades” to recover if the controversial blanket bank guarantee was not introduced in September 2008, the then governor of the Central Bank has claimed.

John Hurley issued the stark warning during a wide ranging banking inquiry hearing yesterday which also saw him reveal legislation to nationalise Anglo Irish Bank “was ready” on the night of the guarantee and that the ECB had ordered countries to “stand behind their banks”.

The Central Bank governor from 2002 to 2009 said he was not in favour of a blanket guarantee when it was first raised in a September 18 meeting.

However, the “horrific” losses of Irish banks in the intervening fortnight meant the move was one of few options by September 29 and that if the guarantee was not introduced, “it would have taken the country decades to recover”.

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While controversial, he said if the decisions taken on the night “were inadequate and failed,” it would have led to “very serious economic and social fall-out for the country as a whole”, adding all banks present knew it was a blanket guarantee and that dated sub-ordinated debt would be included.

During the infamous meeting, Mr Hurley said then finance minister Brian Lenihan also “teased out” the idea of nationalising Anglo, giving him the understanding that legislation similar to that used in the early 2009 nationalisation was already drawn up if needed.

However, it was not used as it would send out a “system instability” and potential “contagion” message.

Despite a widely held view that then taoiseach Brian Cowen over-ruled Mr Lenihan on nationalisation, Mr Hurley said there was “no over-ruling, in my presence” but that “a separate political discussion” also occurred.

Pressed on whether the ECB was involved in the guarantee, Mr Hurley said “after contact”, it had been “made clear” to him a Lehman Brothers situation must be prevented and that countries should “stand behind their banks”.

While declining to say who contacted him, he said: “The message was clear to Ireland and me: No Lehman’s. Government to stand behind their banks. They were the messages.”

Meanwhile, Mr Hurley, who retired in 2009 on a €175,000 pension and €525,000 lump sum, admitted the Central Bank was completely in the dark on key boom-time problems.

He said the institution had no role in “bank supervision” from 2003 after the creation of the Financial Regulator as the Central Bank “respected” the “division of responsibility” and “did not interfere”.

Mr Hurley admitted warnings were “not adequate” from 2005 on but insisted the banking sector’s “overall stability was sound” and financial checks were “state of the art”.

He confirmed that just 48 Central Bank officials out of 1,200 were involved in bank regulation, and only three staff in the Financial Regulator were examining Bank of Ireland and AIB in 2008 compared to 200 in the firms’ internal auditing teams, but claimed greater regulation would not have prevented the crash.

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