Martina Devlin
Financial institutions have had an easy ride over trackers – it’s time the Central Bank fought fire with fire
‘WE are far from a revolution in how the banks operate.” Just 11 words from Central Bank governor Philip Lane reveal that big dog eats little dog remains the marketplace rule in Ireland’s financial institutions.
The greedy, mismanaged banking sector lost Ireland its sovereignty and required a €64bn bailout to rescue it. Reformation and transformation ought to have followed that teeter on the brink of disaster – instead, business continues as ruthlessly as it did before the collapse.
In the senior banker’s world view, nothing can be allowed to interfere with the pursuit of profit. This is signalled by their behaviour towards customers – the policy is to squeeze them – and towards regulators, who have been lied to, evaded and threatened with legal action as they tried to make banks accountable for overcharging.
Dissuading some banks from fleecing tracker mortgage account holders has been a slow and patchy process, with Professor Lane speaking of the need to “push” and “drive” them along to accept customers should be refunded and given adequate compensation.
Clearly, senior bankers aren’t troubled by feelings of gratitude for their survival. They have been too busy exploiting a grey area at consumers’ expense, and subsequently arguing about it with the Central Bank. The end result is that some two-thirds of those owed money have not been repaid yet.
The banks have delayed, disputed, lawyered up and, in some cases, attempted to intimidate the regulator with talk of legal action. That’s how highly they rate consumer protection. Those bankers have short memories. They would not be open for business but for the bona fides of Irish citizens.
Appealing to their better natures and seeking to make them see the error of their ways seems to be Prof Lane’s approach. It’s not delivering results quickly enough. This issue has rumbled on for nine years – people who were overcharged might be refunded next year, they are being told. This is patently wrong. Justice delayed is justice denied.
Prof Lane needs to fight fire with fire. The Central Bank has powers of authorisation, supervision and enforcement. It possesses an extremely useful tool which it should use to avoid accusations of being a dog that refuses to bark never mind bite, as Pearse Doherty suggested to the governor.
The decision to deny customers the right to revert to their original tracker mortgages, after switching to fixed rate offers, must have been taken at a high level in the banks. Some clever money people saw it as a way of helping to restore profitability. There has to be a paper trail which ends at their desks – hold them accountable.
How? Threaten to take away individual bankers’ fitness and probity certificates. Tell them if they have been lying to the Central Bank, they fail the integrity test.
The fitness and probity function was introduced under 2010 legislation to ensure people in important financial positions were “competent and capable, honest, ethical and of integrity and also financially sound”. Now’s the time for the Central Bank to start warning senior bankers who prevaricated or were economical with the truth that they will no longer be licensed for their role.
Sanctioning individual bankers is a more useful deterrent than fining banks, as has happened already, with more fines likely. Prof Lane prefers voluntary compliance. However, I suspect bank customers prefer effective and prompt policing of the banks.
Let’s pause to recap here. During the Tiger years, Ireland’s banks were in thrall to the property market, and run on the basis of excessive lending policies with inadequate risk assessment. Loans for overvalued land were advanced to developers without sufficient security against borrowings. The strategy, underpinned by a bonus culture, led to wealth destruction on a huge scale. When the music stopped in 2008, Irish citizens found bank debt transformed into sovereign debt. The banking sector would have folded if taxpayers hadn’t borrowed to the hilt to refinance them.
Our good name kept them operating, and we will be paying off the banks’ gambling liabilities for many years to come. They gambled and lost, we shouldered their losses, and in consequence it has been a difficult decade for a great many citizens. Some lost their jobs, others emigrated – few among us did not suffer a contraction in income, at the very least. All of us experienced a deterioration in the services which the State could afford to offer.
Granted, we have been paid back some of the borrowings, and the process is ongoing. Profitable banks are better placed to make those repayments. But there was a human cost to the bailout that can never be refunded.
And now, as we begin to emerge from the hardship and distress of those years, what do we learn? That senior bankers have behaved opportunistically at citizens’ expense.
At least 20,000 customers – probably more – were obliged to pay hundreds of euro extra each month to meet their mortgage repayments. Some lost their homes as a result. Legal? The jury’s out. Ethical? Absolutely not. Lucrative. Oh, yes.
Instead of making reparation when caught by the Central Bank, some of the banks have hinted at taking legal challenges against the regulator. That speaks of a ruthlessness at the core of an industry which – we cannot say this too often – exists because citizens threw it a life-line.
Prof Lane mentioned a lack of candour by some bankers, under questioning by the Oireachtas finance committee earlier this week. That’s troublesome because it is part of a pattern.
The banks lied about the scale of their problems in 2008 when they were on the edge of a precipice. They insisted repeatedly that they suffered from liquidity and not capital problems. If there had been full disclosure, it is highly unlikely that a blanket guarantee would have been given by the late Brian Lenihan, then finance minister. So, they learned it pays to be dishonest.
Further lies followed a few years later about performance-related bonuses, when they denied to politicians that any were being paid to bankers. And now, less than a decade after the collapse, it is apparent that an elastic attitude to truth has currency in some financial circles.
We ought to bear in mind that the Central Bank is not in the dock here, although its personnel do need to challenge bankers more assertively. It is the high street banks that are under scrutiny – and they do not inspire confidence.
The lesson to be drawn is that pressure and not persuasion is an effective way to deal with our ungrateful banks.
The banks would not be open for business but for the bona fides of Irish citizens