Clear property crash warning ignored, inquiry hears

The risk of a property crash was “clearly flagged” but ignored by senior staff at the Central Bank as far back as 2004, the bank’s former head of financial stability has claimed.

And in 2007, as the economy was at a tipping point, warning calls made by Frank Brown were also not heeded and a more positive outlook was put out by the institution, it was alleged.

In a statement to the banking inquiry, Mr Brown claimed that, as the economy became more fragile, the “language of concern was going in the opposite direction”, with warnings being toned down by senior management before they were published.

He said that financial stability reports which he produced from 2004 onwards were “censored”, “watered down”, and warnings were kept from the public.

Although financial institutions were in a relatively healthy state in 2004, he expressed concern that house prices had risen significantly and could lead to a bubble followed by a bust down the line.

He said a line in his report that year — “the prospects for a soft landing for Irish house prices are not favourable” — was taken out of the final draft by bank officials.

“Contrary to popular view, the relevant decision makers were informed in good time before the financial crisis about the imminent and growing risk of a property bubble and were enabled to make the appropriate decisions based on such information,” said Mr Brown.

He said his reports were ignored as the Central Bank was more concerned about getting the “tone” of a financial stability report “right” as opposed to “flagging the real dangers overhanging the financial system”.

Mr Brown said not all the risks emerging from the research and analysis survived to the stage of the joint board of the Central Bank and less so to the public domain.

“Those that did were watered down by the time they arrived at this stage. Others appear to have been censored before they might have come into the public domain,” he said.

He said that, in the months leading up to the property crash, senior management again “failed to acknowledge the weight of results of research and analysis supporting misalignment in house prices”.

“In effect, it wasted the last opportunity, however belatedly, to call a hard landing, which would have focused all of the financial risk [that] was clearly flagged,” he said.

“Although requested to conduct research and analysis, the results of this work was neglected and ignored for the most part by senior management.”

Former director general of the Central Bank Liam Barron, refuted the “grave accusations” that appear to “have the effect of protecting [Mr Brown’s] own reputation”.

“Frank Brown’s suggestion is patently incorrect and factually unsustainable.”

Former Central Bank governor John Hurley also refuted a number of the points made by Mr Brown.