Nationalising earlier ‘would not have averted bailout’

NATIONALISING both Anglo Irish Bank and Irish Nationwide Building Society two years ago would not have averted the need for Government to introduce its bank guarantee scheme, the Dáil’s Public Accounts Committee has heard.

Following last Friday’s release of documents relating to the launch of the bank guarantee in September 2008 — which showed that the Government was advised on other options such as nationalising the two institutions and offering a narrower, less costly lending scheme than the guarantee — the committee yesterday questioned the Department of Finance’s secretary general, Kevin Cardiff.

Mr Cardiff said that advice from the likes of consultants Merrill Lynch and PricewaterhouseCoopers (PwC), saying that Irish banks were basically well-capitalised, didn’t necessarily mean that there wasn’t a financial stability problem in the sector and that the rate at which the situation regarding bank funding deteriorated warranted a broader guarantee.

“If you want to have a growing banking system, then most of the institutions in that system must be supported if they get into trouble,” he added.

The use of external advice from PwC, Merrill Lynch, Goldman Sachs and others has cost the Government nearly €20 million.

In response to solvency issues surrounding the banks — and, particularly, Anglo Irish Bank, which ended up being nationalised at the beginning of 2009 — Mr Cardiff said the department had been satisfied in the autumn of 2008 that it was getting a detailed picture of financial flows at the banks, but that there was “a lot of uncertainty” about their financial strength.

He added that the department was concerned at the time that the then financial regulator “didn’t have sufficient understanding of the workings of each bank”. However, there was, he said, nothing to suggest a solvency problem at Anglo at the time of the guarantee. The drafting of legislation to allow for potential nationalisation of the banks, in June 2008, was, according to Mr Cardiff, a contingency plan.

Labour TD Pat Rabbitte described as “outrageous” that Anglo directors presented a detailed case for their long-term survival and growth to the Department of Finance mere months before being brought under state ownership.

In response, Mr Cardiff said that the department had been “sceptical” about Anglo’s vision and that the Government had not been relying on Anglo’s own directors for its view on the bank.

Meanwhile, when asked why the committee had only received half of the relevant documentation regarding actions leading up to the guarantee, Mr Cardiff said the department had to deal with issues of confidentiality requirements, commercially sensitive bank-related material and legal privilege.

Yesterday’s committee also heard that the value of the bank guarantee scheme has fallen from its original €380 billion in late 2008, to around €270bn today.


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