Banking Inquiry report blames Central Bank and Financial Regulator for failing to stop economic collapse

Former Financial Regulator Patrick Neary

By Fiachra O Cionnaith and Daniel McConnell

The long-awaited Bank Inquiry report into what caused the economic crash has blamed the State's financial watchdogs for failing to stop the crisis - despite having the powers to do so.

The conclusion was revealed at a press conference in Leinster House this afternoon to launch the 375-page document, which has also found politicians from all major parties were complicit in backing financial plans which contributed to the crash.

The detailed report - which has been mired in criticism for months over claims it will fail to uncover who is responsible for a near-decade of austerity inflicted on Irish people - said the Central Bank and Financial Regulator had the powers to prevent aggressive lending in banks and an over-reliance on the property market.

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However, the document drawn up by the 11-strong cross-party team of TDs and senators said the watchdogs failed to act on their powers in part due to a blurring of lines over where their responsibility began and ended and a reliance on banks to provide assessments of their financial health themselves.

The report also said the Fianna Fáil-led government between 1997 and 2011 repeatedly failed to acknowledge concerns about an overheating economy by not taking account of European Commission issues or fears over a hallowing out of the income tax base.

The report states that despite internal Department of Finance Budget strategy memorandums which are meant to be used as a platform for that year's Budget raising concerns over the focus on pro-cyclical taxes, they were repeatedly ignored.

However, it is equally critical of the then opposition of Fine Gael and Labour, saying the now Government parties were similarly in favour of the same pro-cyclical measures.

The report also confirms the bailout was considered as early as September 2008 and was "inevitable" by October 2010, despite the then Government's insistence this was not the case.

It further confirms that the European Central Bank issued an "explicit threat" to Ireland that it would pull all emergency liquidity funding - money that was keeping the country alive at the time - if we did not enter the programme, and that both the "soft landing" idea and the view that all of the guarantee was decided on the night of September 29, 2008 is a "myth".

The report from the much-maligned Inquiry which cost €5.4m, has found that the then attorney general, Paul Gallagher, explored the possibility of burden-sharing with senior bondholders, with legal assistance from the International Monetary Fund, in November 2010.

However, it confirms a troika programme involving the ECB, IMF and the European Union could not have been agreed if the Government had targeted senior bondholders.

The inquiry finds that the ECB’s refusal to allow Ireland to force losses upon bondholders led to Irish citizens taking on “inappropriate” and significant banking debts.

However, it reserves the most significant criticism for the ECB and finds it also threatened Ireland on November 19, 2010 that it would discontinue its emergency liquidity assistance funding for banks if the State did not enter a bailout programme.

Nine days later Ireland formally entered a bailout programme with the ECB, IMF and European Commission. The report will find that the bailout was inevitable from October 2010.

The committee will also confirm that the Fianna Fáil-led government was assured by the Central Bank and the financial regulator that all six institutions were solvent on September 29, 2008, the night the bank guarantee was agreed – and that those who decided on the blanket guarantee did not have adequate information available to them.

The report will find that the ECB made it clear no bank was allowed to fail, and that there would be no European-wide initiative to underpin the sector.

The inquiry will confirm that the Central Bank had sufficient measures to ensure the banks would have opened the following morning if a guarantee had not been put in place.

This will move to dispel the argument that Anglo Irish Bank would have defaulted had a guarantee not been agreed.

The committee will find that the then-governor of the Central Bank, John Hurley, argued strongly that a guarantee was necessary.

It will find that the failure of banks was the direct responsibility of their senior managers and boards of directors, and their collapse was brought about by an overreliance on market funding and the continued introduction of new mortgage products – which also had the effect of masking the underlying problems in the construction and housing sectors.

It will also find that their collapse was not the result of any single decision, but instead the cumulative effect of multiple events and decisions.

Bank of Ireland had internal discussions about a possible need for a capital injection from the State weeks after the bank guarantee was introduced, according to the Oireachtas banking inquiry.

The inquiry has detailed minutes from a board meeting on October 13, 2008, indicating the bank would require taxpayer support.

The Banking Inquiry report, which was released at 3pm, outlined how the meeting declined to approach the Government at the time, given the decision on September 29 to guarantee the banks.

The bank insisted this was not an opportune time due to the impending announcement of the Budget.

The report finds the board discussed how it could request taxpayer investment as a source of equity.

The committee does not make this as a finding due to the objection of Bank of Ireland. In its response to the final report, the bank said this was misleading and incorrect.

Ultimately the bank received €3.5bn in taxpayer re-capitalisation in February 2009.

The inquiry also found the European Central Bank explicitly threatened the government in March 2011, saying it would withdraw emergency support for Ireland’s banks if losses were imposed on senior bondholders.

The sharply worded criticism heads the final report of the cross-party committee.

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