Inquiry needs full scope to do its job

Commission must investigate the minister for finance’s intervention in plan to make banks more compliant. By Vincent Browne.

The Greens are about to engage in yet another capitulation over the terms of reference of the commission to inquire into the economic and banking crisis.

They have already given in on the inquiry being in public. They are about to give in on the extent to which the inquiry will examine Brian Cowen’s role in both the banking and the economic collapse and there will be all sorts of palaver deployed to disguise that. Stuff about there being no necessity for finger-pointing (translated this means: forget about accountability), that the two reports by Patrick Honohan and the economists Klaus Regling and Max Watson tell us almost everything we need to know (translation: all we can now bear to know and remain in government); that we need to look forward now (let Brian off the hook, for God’s sake).

But we sure as hell need to know what went on and why, principally the extent to which our prime minister was responsible for the most wanton damage done to this country since the Famine.

I have focused previously on the attempt by the Financial Regulator to require directors of banks to sign a statement confirming their compliance with proper banking practice. This seems to me to be a fairly perfunctory requirement, one that was legislated for in a 2004 amendment to the Central Bank Act, 1997.

This had all arisen from the prevalence of criminal practices in the banks in the 1990s over the Dirt matter. When the regulator issued a consultation document on this in 2004, the banks weren’t a bit pleased. They lobbied the Department of Finance and, I suspect the minister for finance, at the time, Brian Cowen, to have this stopped, even though it was part of an Act of the Oireachtas passed earlier that same year.

The department specifically requested the regulator not to proceed with even the consultation process on this issue without first discussing it with the department.

How this was not a direct interference with the independent function of the regulator, I do not understand.

Then, lest the regulator had not fully understood the representation from the department, Brian Cowen personally made it known to the regulator that he was not too keen on this idea either.

According to Patrick Honohan’s report (pages 48-51) the minister (namely, Brian Cowen) made it known that the regulator should assess the significance of this proposal in the context of competitiveness in the financial sector (incidentally a consideration that the Honohan report itself says later on was a nonsense).

The upshot of all this was that the regulator backed off entirely. He declined to exercise the powers given him by the 2004 Act to insist that bank directors give written commitments to act properly as bankers.

Curiously, Patrick Honohan, in his evidence to the Oireachtas finance committee on Friday week last, pooh-poohed my focus on this. He said I had made “a big deal of this in trying to personalise it”. He said this was not a personal intervention by the minister for finance. But his own report states clearly and categorically (top of page 51): “The [regulatory] authority was also informed in December 2006 that the minister for finance felt that it was important to assess the competitiveness issue”.

At the very least, this must be investigated by the commission and it would be unconscionable for the Greens to let Brian Cowen off the hook on this. We must know why he, or others acting specifically on his authority, interfered with the regulatory authority in this way, which surely contributed in part to the practices that caused the collapse of the banks, at such enormous cost to this society.

We also need to know whether Cowen rejected official advice on overheating of the economy, which led to the collapse, and, specifically on removing tax breaks that inflated the property bubble. He has claimed that he closed off these tax breaks in 2006, whereas the Regling and Watson report makes it clear these tax breaks did not close down until 2008.

And a further point. Patrick Honohan lets Cowen and Brian Lenihan off the hook in regarding Anglo Irish Bank as being of systemic importance to the banking system because had it been allowed to fail, there would have been a collapse of confidence in the two major banks, AIB and Bank of Ireland.

In his report, he did not canvass the option of letting Anglo Irish Bank go to the wall on the night of September 29th, 2008, while giving guarantees to the two main banks. But he did so in his evidence to the Oireachtas committee and there he said – rather limply I thought – that “It is possible they [the Government] might have said they would guarantee everything else and liquidate Anglo Irish Bank. This could be imagined, but it would not have been trouble free, there would have been terrible criticism across Europe that a big bank had been allowed to fail and that it would have destabilised everything”.

Why? Destabilised everything? And why would the Government have cared about criticism from Europe since the guarantee they gave enraged Europe because of the blanket nature of the bank guarantee?

We need to know.