Banking failure - Leather boot needed, not kid gloves

The announcement by the Financial Regulator Patrick Neary last Friday of his decision to retire — following a critical report into the functioning of his office — highlights the need for a whole new culture in relation to banking in this country.

Whether or not Mr Neary actually knew about the secret loans to executives of Anglo Irish Bank, members of his staff certainly knew since January of 2007. The recent report blamed a breakdown in communication in the Regulator’s office for keeping Mr Neary in the dark about the outrageous conduct in Anglo Irish Bank, and thus, for not informing the Government when it was drawing up its rescue package for the banks last autumn.

Commenting on Mr Neary’s decision to retire, Finance Minister Brian Lenihan pointedly failed to thank him for his services, or to express any of the other niceties usually extended on such occasions. Mr Lenihan was reportedly furious that Mr Neary was unaware of the €87 million in loans to the chairman of Anglo Irish Bank, Seán FitzPatrick, who had the revolting audacity to complain on RTÉ early last year that there was too much regulation in Irish banking. Obviously there was not nearly enough regulation.

In recent years, the banks gave a whole new meaning to the term bank robbery, as they ripped off customers and facilitated tax evasion. Yet none of the bankers were ever held responsible.

The Financial Regulator never fined any of the banks for this behaviour. As a result of this failure, the New York Times described Dublin as early as 2005 as “the Wild West of European finance”. If allowed to go unchallenged such a perception could have a destructive impact on the financial services sector here.

The irresponsible and reckless behaviour of bank executives has played no small part in undermining the Celtic Tiger economy. It was not just the result of the misbehaviour of a few top executives, but also those who facilitated them.

There have been some resignations from the board of Anglo Irish Bank, which was supposed to have been the top line of protection. But what about the auditors? Could the bank officials have loaned themselves so much money without the auditors detecting it? If they did not detect it, surely the reasons for this should be exposed to ensure that it could never happen again. If, on the other hand, they did know about the loans, even more serious questions will have to be asked about why they failed miserably in their primary responsibility of reporting what was happening.

The appointment of a new financial regulator must herald the end of the culture of greed and irresponsibility that has pervaded Irish banking for too long. This will not be achieved by the token resignations of a few top executives or board members. Those who facilitated such behaviour must also be held responsible.

There must be no golden handshakes or golden parachutes, because what such people deserve is no less than the figurative leather boot up the backside.