Liam O’Reilly told the Oireachtas probe into the banking crash that the checking system failed and a more robust approach should have been adopted in the lead-up to the financial collapse.
Mr O’Reilly, who was financial regulator from 2002 to 2006, said he could not foresee the crash of 2008, which he called a once-in-a-century event.
“It is now widely agreed that the event which occurred was a 1-in-a-100-year event, and would have therefore had a very low probability of occurring,” he said. “It would therefore have been practically impossible to predict. Again, we were not alone, in that this shock was not predicted anywhere in the world.”
The former chief executive of the Irish Financial Services Regulatory Authority said it never occurred to him to apply mandatory lending limits on banks.
He said the Central Bank had been most concerned about trying to dampen down credit, but were too patient with lenders.
Mr O’Reilly said sanctions should have been applied quicker under his successor, Patrick Neary, as he said there seemed to be a “long-fingering” of penalties.
The former regulator said that, in 2004, he became “cynical” about whether banks were applying the policies they should have been.
He said he thought that, when he left his post in 2006, the authority was in a good state, but added that there was an “iceberg” on the horizon which he had not seen.
He agreed that, in hindsight, the crisis was embedded by then but that he did not have a sense of it.
Mr O’Reilly was asked by Fine Gael TD John Paul Phelan if he thought there was a conflict of interest when he took up board positions at Merrill Lynch and Permanent TSB after retiring.
Mr O’Reilly said he could understand the perception but he had a constitutional right to work if he wanted to.
Socialist Party TD Joe Higgins told Mr O’Reilly that the era seemed to be marked by gentlemen regulators dealing with bankers who were in fact street brawlers.
Another former chairman financial regulatory authority, Brian Patterson, said the organisation had been set up as a compromise when it was formed and took on traits from the Central Bank, such as “secrecy”.
Mr Patterson said that, in the run-up to the banking collapse, the authority was involved in “principles-based regulation with not a lot of intrusion”.
Mr Patterson said the authority could have done more, and intervened “sooner”.
“We simply did not see the calamity that was coming down the tracks,” he said.