Challenging the banks - At last, a breath of fresh air

Every now and then someone steps out from the crowd and challenges our perceived wisdom, our institutions or our unattractive habit of imagining that taking action is optional once a promise to take action has been made. Someone who rejects the beguiling and often deceitful comforts of the status quo.

Yesterday one such conscientious and brave person put their head above the parapet and challenged one of the most powerful — still — sectors in this society.

Fiona Muldoon, the director of Credit Institutions and Insurance Supervision at the Central Bank, stepped into the lions’ den and spoke at the Irish Banking Federation’s annual conference and challenged our banks to be far more proactive and creative, to embrace a real sense of urgency in tackling the frightening and escalating mortgage crisis.

Ms Muldoon challenged this group, far more used to making demands than facing them, and she challenged the “culture of cosy” that contributed so much to our difficulties. She emphasised that the time for delivering an effective response to the toxic legacy of reckless banking had long since passed.

Most importantly, she warned that unless measures are immediately taken to accept the realities of our mortgage crisis then the banks will, in time, have to accept the accusation that they failed this society for a second time. Such a betrayal cannot be contemplated.

She also warned that unless banks do more and do it quickly, the relationship between society and the banks might become unworkable. Such a stark warning for someone in Ms Muldoon’s position cannot be ignored. It warns of a collapse that, even as the idea of capitalism struggles to convince and sustain the social contract at its heart, is almost too grim to contemplate.

Though speaking in the most polite terms she was scathing, and to suggest otherwise would be another act of denial by the banks, about what she described as the “wait-and-see” policy on mortgages. She challenged the commercial rationale behind it suggesting that “further falls in asset values have just simply increased ultimate losses for bank and borrower alike”.

She also pointed out that this policy represents the very opposite of what is required — committed and imaginative leadership.

Though banks were her primary focus she also sounded a note of warning to those struggling to meet their obligations saying we cannot afford the “cultural breakdown” that links negative equity with debt forgiveness. Unless we move the goalposts in an unimagined way it is hard to contradict that assertion.

When the bankrupt banks, teetering on the edge of collapse, came cap-in-hand to our government seeking urgent support to keep the ATMs working they were facilitated. Vast sums well beyond anything this society could afford were committed to supporting edifices undermined by those entrusted with their protection.

One of the conditions of that support was the appointment of public interest directors to the boards of the banks. Since then it has become too easy to imagine that they too have been seduced by the “culture of cosy” but Ms Muldoon’s challenge has made it impossible for these directors to run with the hare and hunt with the hounds. Starting today they must explain what will be done to address the concerns she has raised.

If they cannot or will not, what use are they?