Extra lending of €25bn a year caused crisis, bank probe told
THE banks created the economic crisis but the Central Bank and the Financial Regulator should have done more, a former Secretary General of the Department of Finance has told the Banking Inquiry.
David Doyle who was appointed in 2006, said bank lending was “by far the greatest factor” but the Central Bank had placed “undue reliance on the regulator’s assessment” of banks’ financial reports”. “That was a mistake,” he said. Mr Doyle, who was appointed in 2006, also criticised the Regulator for taking these reports “at face value” and not subjecting bank loan books to “any meaningful scrutiny”.
He said the department was “wrong to relay on consensus forecasts for a soft landing”. He regretted this.
“What really caused the banking crisis,” concluded Mr Doyle, was the €25bn a year average increase in lending by banks to individuals and non-financial business between 1998-2008.
On the night of the Bank Guarantee the question of emergency liquidity assistance was considered for Anglo Irish Bank but “the view was that the information would leak with dire consequences”.
Involuntary liquidation of Anglo and Irish Nationwide would have created a real dan- ger of a complete collapse in the banking system.
When it emerged that Anglo Irish Bank had exhausted all funding avenues, “the option of doing nothing was simply not a runner”.
Mr Doyle described the guarantee as the “least worst action” on the night, saying it was essential to avoid a collapse of the banking system.
He also said the late Finance Minister Brian Lenihan and the then Department Head of Banking, Kevin Cardiff, had been in favour of nationalisation of Anglo initially.
Mr Lenihan had a private meeting with Taoiseach Brian Cowen and when they came back Mr Cowen announced the guarantee without the nationalisation of Anglo.
Earlier another former Secre- tary General said civil servants and the Minister for Finance were “nervous” about interfering with the property market in case they caused a severe downturn.
Tom Considine held the post in the Department of Finance from 2002-2006, when he retired on a pension of €118,000 a year.
He is also paid an additional annual fee, which amounted to €98,000 last year, as a public interest director on the board of Bank of Ireland, from which he has earned more than €500,000 since his appointment in 2009, the inquiry was told.
In his evidence to the committee, Mr Considine said the financial crisis could have been averted if the Irish banking system had doubled the buffers it actually had in place at the time.
During his period in office, “the available safety margins seemed to be more than adequate”.
This had not proved to be the case, given the “seismic” shock that hit the economy, and “I very much regret that I did not see that”.
Mr Considine described to the inquiry how attempts had been made by Government to cool the property market in 2006.
At the time, a general belief that the economy was strong put “intense pressure” on Government for additional spending and tax reliefs.