Central Bank out of sync with real world – where trust in our lenders may never be restored
FRANCESCA McDonagh has the imperious presence of a woman whose professional life is mostly spent giving orders – or issuing directives of one kind or another.
Only a few weeks in the top job at the Bank of Ireland and her primary objective could not be more clear. She must drive the profits and share price ever upwards. But she must also chart a way forward, for what was once regarded as one of our most venerable institutions. The highly respected UK-born chief executive of Irish heritage must try and consign to the past the humiliations and defeats visited upon the bank during the bailout era. She must combat a residue from those days that bankers as a breed cannot be trusted.
Having scarcely settled in, she found herself among those hauled before Finance Minister Paschal Donohoe this week. The politicians, with their own reputations on the line, were hunting down the chief executives of all the banks, as public anger over the tracker controversy fuelled suspicion that even darker deeds may have been at play.
As charge and counter-charge was levelled against our primary lending institutions, the Government was determined Ms McDonagh, and her opposite numbers in the other banks, should be seen to eat humble pie. A grovelling apology for alleged misdemeanours was clearly in the mix. These financial heavyweights would also have to offer assurances any wrongdoing would be put right. In the political interest, retribution would have to be made with as much public fanfare as possible.
The optics are crucial for the Government, which has been charged with waking up to the gravity of the tracker debacle much too late. It’s no surprise Mr Donohoe was at pains to emphasise fire and brimstone will fall on the bankers should they “fail to do the right thing”, and quickly.
No doubt each institution had sought legal advice as to how those chief executives should react when they emerged from what the minister assured us was a very public dressingdown. They also would have had their public relations advisers in overdrive. Therefore it was not surprising we had a round of ritual apologising. And we had assurances – sometimes vague – they would do right by customers within a specified time frame.
It was all a show for the television cameras by both sides of the argument. But the most direct reaction was from Ms McDonagh. She wasn’t making any immediate promises, and there was no grovelling apology on view to try and woo favour from the politicians.
“We listened very carefully to what the minister had to say and his concerns. We are treating this matter very seriously and we’ll be making a statement in due course,” she intoned.
Subsequently, it emerged an estimated 4,300 of her customers would be compensated by the end of the year. But, as with the other banks, the devil will be in the detail. Then, within 24 hours, it was also reported Bank of Ireland would dig in its heels when it came to its own staff. Around 2,000 current and former employees who lost out on tracker mortgages will not have them returned.
An underlay to the controversy are suspicions of a secret banking cartel
If the Government doesn’t win this battle its approval rating could take a big hit
arrangement on how to confront their shared tracker conundrum.
Things will never be quite the same again between our major lending institutions and their customers. The sharp practices and dodgy dealings leading up to the bailout years have not been forgotten. There is one worrying conclusion from all the smoke and mirrors around the tracker row. Some of those working in your friendly local bank may not be entirely trustworthy. The knock-on from this sobering reality is now like a tornado in the body politic.
Quite simply, if the Government is not seen to win this battle, its approval rating could take a severe hit.
But a satisfactory resolution is bedevilled by the fact the stand-off remains in the depths of a legal quagmire. Senior management in the various institutions involved know this. If they hang tough and are determined to fight their corner in the courts on some of the more complex and disputed cases, unseemly squabbles lie ahead.
Long, drawn-out, legalistic confrontation, involving traumatised individuals and families, will be an ongoing deflection from Leo Varadkar’s strategy in the Dáil. As of now, it looks like mainstream complainants will be offered recompense of varying amounts. But the real battle will centre on cases where the determination of right and wrong will not be so clear-cut.
In the popular mind, the role of the Central Bank has been perplexing, to say the least. While accepting the complexity of the legal arguments involved, there is mounting evidence more determined and focussed action should have been taken sooner.
The plea by the governor that “moral suasion” should be used to bring about best behaviour in the rough, tough, profit-driven battlefield of high finance, sounded out of sync with what happens in the real world. It was an ominous reminder of the infamous ‘light-touch regulation’ of our banking system only a few years ago which had catastrophic consequences for the entire economy.
An appeal for probity and ethical behaviour is both commendable and necessary. But it is not a substitute for a system which insists on personal accountability where there is obvious intent to hoodwink a bank customer in contravention of the civil law, or in some cases the criminal code.
The Central Bank is charged with riding shotgun on our major lending institutions. And for such an oversight role, it needs to be austere, overbearing, and confrontational. As a certain Niccolò Machiavelli put it, there are occasions when “it is better to be feared than loved – if you cannot be both”.