Further investigation needed into banks, says Honohan

The Governor of the Central Bank has said we still do not know how the major banks failed to avoid disaster.

Patrick Honohan is before an Oireachtas Committee answering questions over his report into the banking crisis.

His report stated that the regulatory approach taken with the banks was deferential and that banking supervision was under-resourced.

"I think that we now know a lot more about the dimensions of the crisis on which my report has focused, leaving relatively little to be explored at the factual level by the proposed statutory commission of investigation," said Honohan.

"As far as other areas which deserve further study are concerned, in the same general territory, but just outside the terms of reference for my report, I feel that we still don’t know enough about the risk management and decision processes in the major banks, and how they failed to avoid disaster.

"I believe it would be useful to commission independent reviews of risk management and governance of these matters for at least the two big banks – this can be a useful exercise on a forward looking basis anyway, but looking at the period 2003-2008 would be key for the present purposes.

"The potential role of accounting and auditing professionals is another matter that deserves additional factual exploration. It may be that this particular aspect should be deferred until after more of the NAMA purchases have been completed, as (judging from the evidence provided to this committee in April by Brendan McDonagh) the due diligence for these purchases seems to have revealed some issues around loan documentation."

"Finally there may also be a case for commissioning a study of the operations of the mortgage intermediaries in loan origination during the boom period.

"At the Central Bank, we have learnt our lesson and are already putting in place new procedures and arrangements that take account of that, and we will be making further announcements on this in the coming weeks."