Inquiry begins first trawl for information

The first trawl for information compelling banks, departments, and state agencies to co-operate with the banking inquiry has begun.

The Oireachtas inquiry yesterday wrote to AIB, Bank of Ireland, the Department of Finance, and the Central Bank, among others, with requests for documents.

Inquiry chairman Ciarán Lynch said it was the first phase of documents to be sought by the probe using its powers of compellability.

It came after its second day of hearings, during which banking expert Rob Wright warned that Ireland would face more problems with an overheating economy unless expectations surrounding the next general election are restrained.

The former Canadian secretary general of finance highlighted the absence of controls over interest rates here during one of the costliest banking crises as a factor which could lead to overspending.

Mr Wright said: “This is a real human tragedy, this is why I am here saying we should learn from it and make sure it does not happen again.

“In a recession people lose their cars, jobs, and houses. This is extremely negative.

“Establishing a framework for stable, ongoing growth is the most important thing.”

Ireland exited its bailout last year and has declared an end to austerity while easing up on spending restrictions imposed by the EU and IMF.

Mr Wright compiled a report four years ago on failings in the Department of Finance during the crisis.

“There are expectations in Ireland in the next election that you will be able to solve a lot of problems with resources that you won’t have to resolve those problems,” he said.

“Unless you are ready to restrain that expectation you will have the same challenge.”

The next general election is due in about 18 months.

The banking inquiry is looking at banking, regulation, and crisis management before publishing a final report next November.

Mr Wright said some good advice that should have been taken by the Department of Finance before the crash was not. He said that by 2005, the brakes should have been applied.

“They were spending money when it should not have been spent in an over-heated economy,” he said.

“When you had spending ramped up that dramatically in an overheated economy that is a dangerous point.”

A number of steps have been taken to avoid a repeat of the crash, including removing interest deductibility against taxable income for financial costs and measures on mortgages.

But Mr Wright pointed to the absence of complete freedom for the Central Bank, with interest rates set by the ECB.

“You face the same pressures we see all parties under, to meet real needs of the economy that fuelled the fiscal spending,” he said.

“What has changed very dramatically now is that a central banker used to pull people back. Central bankers are much better at pulling back.

“Now you don’t have a central banker that is going to deal with the unique monetary needs of this country; you are part of a broader economic union.

“It puts a lot more pressure on you as politicians to help the people of Ireland to restrain expectations and to explain why there is a danger of over-incentivising the economy that is not obvious to people yet.”

The committee will meet again in public on January 15 and hear from Central Bank governor Patrick Honohan, who will speak about his own report on the crisis.