Head over to our T
Decision time on Banking Inquiry
Read more about: Uncategorized 
Since the autumn of last year, momentum has been steadily gathering for an inquiry into why our banks collapsed.
The call for an inquiry was first made by economist Colm McCarthy, who initially envisaged a parliamentary forum along the lines of the PAC inquiry into DIRT payments some years ago. Since then McCarthy has expanded on the reasons why he believes a banking inquiry is essential but has become less explicit as to what form it should take.
On his first appearance before an Oireachtas Committee, the new governor of the Central Bank, Patrick Honohan, tipped his hat in favour of an investigation mainly focused on regulatory failure. In the process, he unwittingly ignited a political storm as the Opposition accused the Taoiseach of being opposed to an inquiry for fear of having his own past sins publicly and politically exposed.
Both the Taoiseach and his Minister for Finance, Brian Lenihan, remain adamant that there is no Government reluctance. Instead it’s all a matter of timing – we will have difficult decisions to make about our banks in the weeks and months ahead, they argue. The Department of Finance can’t afford to take their eye off that ball because of what would be entailed in setting up and servicing a banks’ inquiry, they contend. Nor can the body politic. The Green Party leader, John Gormley, broadly supports this stance, but appears more keen to get the ball rolling on setting an inquiry in place at an early date.
Next Tuesday, the Cabinet is expected to debate what form an inquiry should take. Or as the more cynical among us might think, just in time for the return of the Dail from its holidays and to cut off the Opposition at the pass. Labour’s Pat Rabbitte is set to table a Bill to remove impediments to an evidentiary based parliamentary investigation that were thrown up by the Supreme Court Judgment on the proposed Abbeylara Dail Committee inquiry a few years ago. His party promises to supplement this with a private members motion. Yesterday, Fine Gael said they too will go the route of using private members time to set the process in train. Enda Kenny proposed that former leader Michael Noonan will be his party’s nominee to any inquiry.
Neither McCarthy nor Honohan want an inquiry that turns into a political and media jamboree. It should be restricted to non-criminal issues and regulatory matters, they insist, and should not include examination of political motives.
“Regulatory and supervisory functions are delegated to the Central Bank and its offshoots,” McCarthy wrote in a recent blog on irish-economy.ie. “The DoF and former Finance Ministers ought not to be in the firing line, on the principle that if you hire a dog, you don’t have to bark yourself. The media, and the Dail opposition parties, sometimes muddy the waters by seeking to pin the tail to the wrong donkey.”
It’s a plea unlikely to cut much ice with the Opposition, some of whom appear to want an inquiry equivalent to the Spanish Inquisition, complete with perp walks of their political opponents, rather than a more sober examination as to why the banking system, and especially the two main banks, collapsed so spectacularly.
“People involved in the financial collapse, whether senior bankers, regulators, civil servants or Ministers, must be brought before the Oireachtas and compelled to explain their actions or lack thereof,” Labour’s Finance spokesperson, Joan Burton, declared in a statement yesterday.
So whatever emerges from the Government meeting next Tuesday, it’s unlikely to satisfy those among the opposition salivating at the prospect of a political hatchet job opportunity. Or those in the media and among the public whose principle thirst is simply for revenge and retribution.
The format for any enquiry is thus a key issue. A lot of the political heat might be taken out of the discussion on nominees and terms of reference if the Government were to (a) decide to appoint a Special Commission or Forum of Inquiry comprised of banking and economic experts and former parliamentarians, thereby excluding sitting members of the Dail or Seanad, and (b) allow the Public Accounts Committee to examine and make recommendations on the terms of reference proposed for the inquiry. The nominees to the Forum might also have their credentials examined in advance by the PAC, to ensure they had the requisite expertise and were sufficiently of independent mind to undertake their responsibilities in the public interest and for the public good.
That way, a Commission of Inquiry, operating within a defined timescale, holding public and private hearings and with terms of reference that took into account the wider background – e.g. the role of EMU and eurozone economics in precipitating the Irish banking collapse – might do the State, and the taxpayer footing the bill for the banks’ crisis, some genuine service
Hi Veronica,
I set up a facebook page “call to investigate the banking crisis by oireachtas committee” and have had a couple of letter to editor opinions in favour of an inquiry printed in the Indo. I am member of FF and the logic as someone who wants FF to be cleaned out and reformed and to stay in power long enough to stabilise the finances etc etc is that the govt needs to move on this to improve international credibility AND for once be proactive about their own media management.Of course the meeja and opposition will keep up the hype about this until govt inevitably give in on it. So its better all round if the govt get on with an inquiry now.
All of us would be loath to see another legal junket.
Your suggestion A for a commission or forum seems a good one.
Des,
I heard Pat Rabbittee on Morning Ireland a couple of days ago and he seemed to be about to say something that sounded quite interesting on the need for any inquiry to place emphasis on the regulatory failure when he got cut short. Personally I think some sort of inquiry is really important, and at the very least the government must make a statement of intent to establish one and set the wheels in motion.
I don’t have a party political position on any of this. It’s just something that needs to be done and, as you refer above, is also a factor in rehabilitating our international reputation. That’s provided it’s done sensibly with the minimum of self-serving political hoopla on all sides. I would be loathe to see something developing that’s just another media circus or a grandstanding opportunity for certain politicians, which is not what we need or deserve, given that it’s all of us, as a community, who now have to bear the pain and the cost of bailing out the banks.
I also think that the whole question of what happened and why, needs to be examined from a broader perspective than just an exercise to assign blame to our native bankers, regulators, auditors or public officials or provide ‘shock and awe’ salacious revelations on a daily basis for the benefit of the media. Some analyses I’ve read suggest, for instance, that the way the eurozone operates is structurally flawed; that in its early years surplus credit flowed out from the centre to peripheral areas, like Ireland and Spain, initially fuelling booms that later transformed into domestic bubbles. If there were serious flaws in our own regulatory framework, and it’s self-evident that was the case, it appears also that there are bricks and mortar missing from the eurozone system that it would be useful to pinpoint, if in fact they do exist, to avoid similar problems arising in the future.
From there it becomes self-evident – well to me, at least – that what is required is a Commission of heavy-weights, of people with in-depth political experience as well as individuals with appropriate expertise and knowledge of the international banking system and economics. I don’t believe that a parliamentary committee – with all due respect ot Pat Rabbitte and the other TDs who were part of the PAC inquiry – is strong enough to achieve what needs to be done. Nor do I believe that sitting deputies or senators should be part of any inquiry, except perhaps as witnesses, because that would immediately politicise the whole process.
As for looking to good communications on this from the government side; I hate to say it, but don’t hold your breath!
The issue of eurozone dynamics is a good point- some of the NO lobby during Lisbon 1 and 2 were saying something similiar I think. Peripheral economies like Ireland becoming imbalanced because of policies set up to suit the large central countries. That could be thrashed out in the right forum.
To do it right as you say, bring politicians in only as required as witnesses if need be and appoint a chairperson of international renown, retired!, perhaps someone formerly high up in the IMF, Federal reserve or Bundesbank.
We need more people to believe its really important. I think dan Boyle almost said on newstalk this morning that FF were less forthcoming about this than the Greens- though Brian L’s endorsement is hopefully most signif.
There is a petition going around the net also which takes heart from iceland’s recent events. Similiarities are slight though between our probs and Icelands.
good analysis on your part.
Des,
How right you are on how slight the simmilarities are between our own predicament and Iceland’s, and thank heavens for that!
What’s the petition about by the way? And why does anyone take heart from recent events in iceland; presumably the referral to referendum of the Icesave deal(?). The universal lesson of history, surely, is that when your banking system fails all of society in one way or another gets to pick up the tab.
The Iceland problem brings the issue of EU-wide regulation into focus, I think, particularly as regards interstate banking rules.
As I understand it, it goes something like this: as an EEA member, Iceland complies with EU Directives requiring States to have a guarantee scheme in place for depositors with their banks. The government of Iceland fund the guarantee through a levy on their banks. Then, when the banks fail, the government discovers that they had not received complete information about the number of foreign-based depositors in Icesave and , in any case, can’t afford to stump up for the losses to these depositors, so the Dutch and British governments have to put up the cash to repay their own Icesave depositors.
Meanwhile, the Nordic countries who will provide much of the funding for IMF loans to Iceland, make that conditional on Iceland concluding a deal with Holland and the UK to reimburse them for their exchequer losses to Icesave depositors, to the tune of about €3.5bn, or about 50% of Iceland’s current GDP. A deal is agreed under duress, voted through the Icelandic parliament by one vote. The President of Iceland refuses to sign; thereby forcing a referendum, in which the proposition is likely to be overwhelmingly (and understandably) rejected by the electorate.
In all this, Iceland is caught between a rock and a hard place – no deal with the UK and the Netherlands means no IMF funding, which cripples their efforts to drag themselves back out of their current financial morass. Arguably, the UK might block Iceland’s application for fast-track entry to the EU, also crucial to its recovery plan. From what I’ve read the UK don’t come so well out of this, adopting an intransigent OTT attitude from the start and then digging their heels in without any regard for the implications of their hardline stance for the lives of Icelandic citizens. In short, bullying a vulnerable small country and also probably doing so as part of a government ploy to appear ‘strong’ in the run-up to a difficult election campaign, though that may be stretching it a bit.
But the real villain of the piece appears to be the EU, for allowing interstate banking to take place on the scale that it did during the boom years without ever seeking to clarify what the rules were as to who should pick up the tab in the event of bank failure, i.e. the state where the deposits are taken or the state in which ownership of the lending institution ultimately resides.
Since it’s not part of the EU, never mind the eurozone, Iceland has no leverage. Without the support of the ECB, it is an accepted fact that our financial system would have collapsed in the early part of last year. The real point of comparison between Iceland and Ireland, therefore, is the difference wrought through membership of the eurozone.
I think we can all empathise with the problems Iceland faces, and hope that for the sake of its people and their future that the EU brings pressure to bear on both the Netherlands and the UK to either back off entirely or agree a less punitive deal. We should also hope, I suppose, that our own dependence on EU and ECB goodwill will not deter our politicians from including an EU dimension to the terms of reference of our own inquiry.
Your idea for a ex-IMF / EU statesman to head it up seems like a good one. Presumably every variation and possibility for a suitable forum and suitable leadership is being thrashed out at length by the powers that be; so Tuesday’s post-Cabinet announcement should make for further interesting debate.
Thanks for the compliment, by the way. Now, if I had a penny for every one of those I receive for my efforts, I’d still be as poor as a church mouse!
A major part of the problem in setting up the investigation is that neither our previous methods for such an investigation are suitable for this case.
If we opt for an Oireachtas committee investigation we will have an inquiry without the power to compel witnesses or make a finding against any individual. They couldn’t even bring Roddy Molloy to account and he was a civil servant. What do you think an employee of a private sector bank will do with the letter asking them to attend and give evidence. It will be a toss up between shred the letter or recycle it for toilet paper. Even if we do have an Oireachtas inquiry the “judges” in the case will be evenly divided in their desire to hang or save Brian Cowen. His guilt/innocence will already be predetermined by the make up of the committee. The TV coverage of the proceedings may earn high ratings for comic value but the general public will quickly dispair of the grandstanding and partisan showboating.
The other method is the good old fashioned tribunal. However I don’t think the public will accept another tribunal after the current endless tribunals effectively brought the whole system into question with their massive fees, never ending proceedings and zero results. Even now over a year since the last hearings the fees continue to roll in while there is still no sign of reports which could really be cut and paste together by a law student from past editions of the Irish Times. Also what are the chances of finding a senior judge to chair the Tribunal who doesn’t share a dinner party circuit with some of those being investigated.
Personally I’m starting to think the best option for the general public would be for no investigation to happen. That way we will have the same outcome (i.e. nothing significant) and save millions in expenses and fees.
Veronica and Colm,
my political memory doesnt go back as far as the DIRT inquiry as I emigrated to work abroad for seven or eight years after I graduated. But I have read several commentaries that the DIRT inquiry provided a template suitable for this.
Something has to be done. I wouldnt let a judge near it. I also think laws giving the inquiry real power should if nec be passed first.
But set a date and then push a bill through the Dail.
Veronica,
I interviewed the Irish consul general to Iceland recently for an assignment ( I did a few modules in communication in DCU). He gave me a local insight into the Icesave fiasco.
His quotes threw up a few salient points to this discussion- the Icelandic president is largely ceremonial but a petition of 60000 people was of such unprecedented and representative scale that he used his little-used power to refuse to sign the bill.
He said that Iceland’s bankers were criminally fraudulent whereas Ireland’s probably were just cavalier; they have already convictions against bankers and the UK fraud squad are trailing the Icesave top guys.
The EEA rules are considered too severe by an Icelandic public who largely dont want to join the EU and are ready to renege on the UK and Dutch depositors’ debt if given a vote on it as they feel they have little to lose.
The rub is that the Icelandic govt and regulator were negligent and complicit. So although its unjust to hold their tax payer negligent the govt they voted in was at fault, not the EEA OR ECB – and the public know this, having already voted out the previous conservative govt and put in a new socialist govt in may 09 and new regulators. There is a scenario painted of a small connected group of bankers and govt who have bankrupt the country. But this group is now in exile.
They have devalued the Krona by half at the IMF insistence and have inflation and interest rates at a level we saw here in the 70s.
Despite that my interviewee was proud of Icelands’s self-sufficiency and was optimistic about the country’s viability if UK and Holland drop the bully tactics ( he compared it to Cromwell coming back into Ireland to plunder!). They have great wind energy, electricity export and are one of the worlds biggest exporters of treated aluminium.
So where does that leave us- we are too open an economy, need more indigenous producers to seal the leaks caused by dependence on imports.
Our corporate governance has been all a bit Irish in the past. Our banks just followed the wall street trends and became sucked in. Our govt didnt push for balance or sustainability after McCreevy lost control because the Bert was no economist and building was the only show in town…
Nobody except maybe Vincent Browne and Jack OConnor could face listening to Joan Burton droning on about this for the rest of the year.
International confidence needs to see a clean breast of it.
The national mood is ripe for schadenfreude and catharsis and maybe as a society we need a few more symbolic sacred cows slayed.
I dont see the hype dissolving unless the issue is tackled.
So I am hoping an honest effective formula to discover and discuss is found.
I get annoyed at the idea of another enquiry. Enquiries in Ireland are like a river flowing into a desert – a means of squandering vast amounts of money going nowhere.
Anyone with an ounce of sense knows who is responsible for the financial mess the country is in and I certainly do not need an enquiry to gloss over facts that have been staring us in the face for years.