PAC banks report - Let’s hope we’ve learnt the lessons

IT is difficult to understand how, in September 2008, less than three days after the country’s two top finance watchdogs – the Central Bank chief John Hurley and financial regulator Patrick Neary – told Government that Ireland’s banks were not facing a debt or cash-flow crisis that a €440 billion deposit guarantee was deemed unavoidable.

We were assured that if such a guarantee was not provided there would be a run on the banks and that complete economic collapse would ensue. It is hard to understand how these experienced and very influential public servants could not see the wood from the trees. And, if they could not see that we were on a Cresta Run spiral towards financial ruin how could politicians who had no training of any kind in high finance?

We are enduring the consequences of very many regrettable political decisions but if advice, advice that should be utterly reliable, was so far off the mark then chaos is almost inevitable.

It is hard to understand how these two men, with the support of the organisations they led, could offer counsel that was diametrically opposed to the reality on that infamous September night almost two years ago.

It should be possible to have a degree of sympathy for politicians in that position but that latitude is made impossible by the fact that Mr Hurley and Mr Neary were Government policy made flesh. They epitomised light-touch regulation and this was tacitly acknowledged when both were given spectacular retirement packages despite their tremendous misjudgements.

If Mr Hurley or Mr Neary had properly supervised the banks and insisted on standards that would have prevented the buccaneering that passed for banking they would not have been the Central Bank chief or financial regulator. They would have been replaced by more compliant, less demanding individuals. People who could accept that things could only get “boomier”.

The Dáil Public Accounts Committee also revealed yesterday that financial consultants Merrill Lynch advised the Government to introduce a secured lending scheme for the banks, under which commercial property could be exchanged for Government bonds or cash rather than a blanket and potentially ruinous guarantee.

It is easier to understand that this proposal was not accepted but it might not, and this can only be said with the benefit of hindsight, have left us in a position as precarious as the one we now find ourselves in.

Even though the PAC cannot publish the relevant documents in their entirety because they have been censored the committee is to be congratulated. It has proved again to be one of the more worthwhile of the Oireachtas committees.

And though the report lists failure after failure some degree of comfort can be taken from the fact that a new culture of independent authority now seems to exist in the Central Bank and at the regulator’s offices – as Sean Quinn might confirm. Any politician, hankering for the old days and see-no-evil-hear-no-evil supervisors would be very unwise to try to curtail those powers or influence in any way.