Tough laws flagged to stop repeat of scandal

LAWS to prevent a repeat of the loans scandal which rocked Anglo-Irish Bank were signalled yesterday.

Chairman of the Financial Regulatory Authority Jim Farrell admitted failures in policing the banking sector as he said tougher legislation may be needed.

Mr Farrell told the Oireachtas Finance Committee there had been a breakdown in trust at Anglo and that with hindsight things should have been done differently.

Central Bank governor John Hurley also told the committee things had to change as business as usual was not an option.

He added that Bank of Ireland and AIB were secure and the dramatic drop in their share prices did not reflect their true positions as he insisted recapitalisation must be tried before other measures like nationalisation are considered. The financial regulator came in for sharp questioning over the way the former chairman of Anglo, Seán FitzPatrick, had concealed loans to himself which at one stage reached €129 million.

Labour’s finance spokeswoman Joan Burton expressed alarm at the “lax” attitude the authority had taken towards Anglo and said it was appalling that the regulator had missed the loans despite the authority having a staff of 380.

The committee heard that the financial regulator body employs almost 400people and its €58m annual budget is funded jointly by the Government and the financial sector.

Mr Farrell said his officials regulate 48 Irish banks out of a total of 13,000 financial entities in the country.

He added no regulation system would have been able to cope with the turmoil in global financial markets in recent months.

Mr Farrell insisted the issue of directors’ loans at the now nationalised Anglo was still being investigated.

He stressed that the financial regulator relied on a relationship of trust with banks which placed the responsibility to be open on senior management of the institutions. This had failed.

More intensive regulation was needed and checks had been stepped up on the six banks now covered by the bank guarantee scheme, he said. “We are committed to putting in place measures to try and ensure nothing of this sort can happen again, including, if necessary requesting Government to introduce new legislation in this area.

“Apart from the controls over directors’ loans, it is clear key areas such as risk management, compliance and general control processes in banks need to be re-examined in light of recent market turmoil. Liquidity management and risk concentration are also areas that need particular attention,” he said.

The global financial crisis had highlighted the need to reform supervision of banks, Mr Farrell added. The regulator also said AIB and Bank of Ireland are in good financial health despite having seen half of their share values wiped out this week.

Following the resignation of Mr FitzPatrick last month, chief executive of the financial regulator Patrick Neary said he would stand down at the end of January. TDs criticised his failure to attend the committee.

In reply to questions, acting financial regulator Mary O’Dea said she had never worked in a bank and such experience wasn’t necessarily a job requirement to be employed by the regulator.