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PAC Enquiry into the Banks
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What’s Colm McCarthy up to? Trying to rehabilitate the Oireachtas? Make us believe that our political class have something relevant to contribute?
Mc Carthy is right: there should be an investigation into how our banks got into the pickle they’re in. He’s also right that there needs to be a much greater public understanding of how they function and their role in our economy and society. And even more right when he points out that any such investigation won’t save the taxpayer a penny of the costs of rescuing the banks.
The media spotlight has immediately beamed in on the prospect of an enquiry where bankers and related miscreants will be subjected to forensic questioning by a cross party sub-Committee of PAC, reminiscent of the PAC enquiry into DIRT tax evasion and bogus non-resident accounts ten years ago. Chaired by the late Jim Mitchell and starring Pat Rabbitte as its parliamentary Prosecutor- In- Chief, the PAC Report on DIRT undoubtedly did a great deal for the political reputations of the six PAC members, resulted in some modest reforms of our financial institutions, and new powers for the Revenue to ensure that a similar tax evasion scam couldn’t happen again. What we’d do well to remember is that this celebrated enquiry failed to prevent another, this time catastrophic, banking crisis happening less than ten years down the road.
Nonetheless, the Public Accounts Committee will be “going after it immediately”, PAC Vice Chair and FF TD for Dublin North, Darragh O’Brien, assured listeners to Morning Ireland. PAC have “discussed this before,” he said, as he fell all over himself to agree with the Labour Party Finance spokesperson, Joan Burton, on how such an enquiry might be initiated by the PAC. The C&AG would need to scope out terms of reference, they both agreed. And yes of course, there will be issues surrounding the compellability of witnesses, or even looking at what was going on in certain banks where legal investigations of one sort or another are already underway. But no, there is no question of any political grandstanding going on in respect of any enquiry; it’s all going to be for the benefit of the understanding of us ordinary folks and our need for accountability from delinquent bankers.
While I think Mc Carthy has the right objectives in mind; he may have selected the wrong mechanism to achieve them. The advantage of a parliamentary enquiry is that it is televised so the whole country can have some nightly entertainment and this might, in turn, improve our general understanding of how we got into the fix we’re in. Then again, it might not. There has to be a big question mark over the capacity of our political class not to use any such enquiry to promote their own careers, or party political objectives, and instead maintain their focus on the public interest. That’s probably far too much to expect of them in the current political circumstances.
Any enquiry without Anglo Irish Bank at its centre would be Hamlet without the prince, or more accurately, the witches garbling away incomprehensibly in the woods, without Macbeth entering on the scene to provide a focus. For legal reasons, the terms of reference and the scope of any such enquiry might turn out to be so severely constrained as to be not worth the bother.
Further, no Oireacthas Enquiry can declare acts to be unlawful which were not so at the time they were committed. So what the media, and some members of our political class, might wish to turn into yet another Act of a long running Morality Play on who’s to blame for the current crisis and how they should be punished for their transgressions, would be a monumental waste of time and energy.
Then there’s the ‘time’ factor – we definitely need an enquiry, but it would take time to set up and several months to conduct and report if it’s going to find out anything useful. And time is what we don’t have. Meantime we have to get on with the urgent task of fixing the banks and nothing can be allowed to delay or distract from that imperative. The desirability of an enquiry is self-evident, but as McCarthy pointed out, no enquiry will save the taxpayer a penny. If it’s used to delay or politically obstruct appropriate actions to resolve our current crisis, the consequences would be disastrous.
There are two points at issue here
1. The Oireacthas as a means of having the enquiry that Colm McCarthy is advocating.
2. The focus any enquiry into what Colm McCarthy calls the failure of the Irish banking system, must be wider than just the banks.
1) Oireachtas
I too remain to be convinced that an Oireachtas Committee can do this kind of work usefully.
In what ways can the Oireachtas do this, given the seamless link between the Oireachtas and the Government – all of whom are members of the Dáil, the lower house of the Oireachtas?
Given the existence of corporation sole (ie. the civil servants are extensions of the Minister), I simply do not believe that any Dept. of Finance official will be allowed to say anything that could conceivably embarrass the current Minister or any previous Minister of Finance.
Thus an Oireachtas enquiry is unlikely to enlighten us on who knew what, when they knew, what action was taken and not taken together with a proper discovery of the influences in play. We have seen the difficulties which Oireachtas-appointed tribunals, which have clearer powers, have had investigating the facts of the matters withintheir terms of reference.
More importantly, such an enquiry will not inform us on options for policies, practices and procedures we need to put in place to avoid the same situation arising again. It is clear that the Dept of Finance has learnt nothing from the 1980s Bord Snip report. It is also missing from the follow-on to Colm McCarthy’s recent effort.
IMO, the Government, Dept of Finance and the Central Bank should be the subject to at least the same level of enquiry that those seeking yet more evidence of the incompetence of bankers. If they claim they are not responsible, what is government (elected and appointed) about then?
We need quiet competence far more than we need the grand gestures of Oireachtas members venting anger, which will serves only to deflect attention from others who are equally responsible.
Not for the first time, I cite Madison “Ambition must be made to counteract ambition. In framing a government which is to be administered by men over men the great difficulty lies in this: first you must enable the government to control the governed and in the next place, you must oblige it to control itself.”
2) Scope of Enquiry must be wider than just bankers
One thing I want to see thoroughly investigated and documented in full is the extent to which the our Central Bank used its powers, if at all, to limit the excess of lending that was going here.
We have heard at least one senior Central Bank official and retired Dept of Finance official (who was also an IMF director) berate us – citizens – for the boom and effectively absolving themselves from any effort to control the excess of enthusiasm for property!
But the Central Bank had and still has powers to limit the amount of credit available.
What are those powers?
Did they use those powers, when there was time to do so?
In short, apart from comment, did they exercise their independence?
If they did, when and how did they do it?
If they did not, why not?
I understand that the Spanish Central Bank (also full members of Eurozone) did this and limited the damage – at least to the main banks!
I gather that the means used was to require the banks to increase their capital base.
Is this true?
If so, why did our Central Bank not adopt similar measures?
Did this kind of thing come up at meetings of Eurozone Central Bank Governors and officials?
There was plenty of external advice that the Central Bank could have used see p. 19 of the IMF Report 1999 – see http://www.imf.org/external/pubs/ft/scr/1999/cr9987.pdf
Was the peer review recommended by the IMF undertaken?
When?
Who were the peers?
What did they recommend?
Was what they recommended implemented?
If so, when?
If not, why not?
Were there further peer reviews during the past 10 years?
Same questions….
What about the other review of the Financial System referred to in footnote 19 on the same page of the same IMF report?
Hindsight is great, but with the Central Bank and former Dept of Finance officials (Cathal O’Loghlin in the Sunday Business Post a few weeks ago) berating us citizens, it is time to ask what the public authorities did about this and other reports, the names and positions of those Irish Authorities that the IMF team spoke to (diito for IMF names), what positions these people now hold, etc.
For another perspective see Prof Frank Barry’s piece in January 2009 on http://www.irisheconomy.ie/index.php/2009/01/16/the-political-economy-of-the-current-crisis/
In this he refers to an ECOFIN report of 2001. This report also drew attention to how the Irish economy was being managed, by the then Minister for Finance
Donal
At an Oireacthas Committee hearing on 8 July last, the head of the Financial Services Division in the Department of Finance resisted any questions from TDs and Senators that he said would put him “ in a situation where I am either defending or attacking the Minister.”
The following (edited) extract from the transcript illustrates what would likely occur at any PAC enquiry into the banks:
Senator Shane Ross: I am trying to establish whether the Department should have raised a red flag and stated that the economy was going downhill very fast. It appears that the Department did not do so. Did anyone approach the Minister to indicate that the banks and the developers had got out of hand?
Mr. Kevin Cardiff: As the Senator is aware, we do not inform Oireachtas committees with regard to the advice we did or did not provide to individual Ministers.
Senator Shane Ross: Why not?
Mr. Kevin Cardiff: It is not the convention.
Senator Shane Ross: It may not be the convention. However, we are entitled to be provided with answers. We do not give a hoot about convention, we want to know the truth.
Mr. Kevin Cardiff: It is not the convention.
Senator Shane Ross: I do not care about convention. I am asking a question and I want to know the truth.
Mr. Kevin Cardiff: Then the Senator should allow me to finish. It is not the convention to discuss toings and froings between Ministers and their Departments. However, I would imagine that if a Minister had received detailed advice from the Department of Finance to the effect that the banking system was out of hand and was about to cause great distress, said Minister would have acted on it. Perhaps the Senator can take from that what is the answer.
Senator Shane Ross: So the Department of Finance gave no warning.
Mr. Kevin Cardiff: That is not quite what I said.
Senator Shane Ross: I am not trying to personalise this but—–
Mr. Kevin Cardiff: I accept that. This is an extremely important issue and I am not trying to sidestep it. The Senator stated that we possess more information than anyone else but that is not actually the case. The Oireachtas, on the basis of advice from the Government and, obviously, the relevant officials, established the regulatory system on an independent footing and gave it a remit. The Department of Finance respected that independence and did not try to do the job itself. …
However, I do not think that anyone, either in Ireland or in other jurisdictions, from what I can see, anticipated this. Whether they could have done is a different question, about which outside commentators may be better able to talk. However, as a matter of fact, I do not think that anyone, either in Ireland or in most of the other jurisdictions with which I am familiar, anticipated or predicted the scale of the dislocation in markets that occurred, partially in 2007 but especially into the middle and autumn of 2008.
Senator Shane Ross: Ireland had a special problem. In Ireland, it was up to us to give warnings regarding our individual problem, particularly in respect of property and banking.
Mr. Kevin Cardiff: Everyone had a slightly different problem. In the United States, it was a sub-prime problem, while in other jurisdictions it pertained to over-exposure to complex financial instruments. In Ireland, the problem concerned over-exposure to property. In retrospect, it certainly would be wonderful to have been the person who, or Department which, had stated this must stop….
Senator Shane Ross: I take it from Mr. Cardiff’s comments that no one in the Department of Finance raised his or her hand to state this was a dangerous situation. The Department simply allowed it to continue the way it was.