Coalition lacked good financial advice, experts say

OIREACHTAS COMMITTEE INVESTIGATES BANKING CRISIS: THE QUALITY of the advice provided to the Government in the run-up to the …

OIREACHTAS COMMITTEE INVESTIGATES BANKING CRISIS:THE QUALITY of the advice provided to the Government in the run-up to the banking crisis was deficient, the authors of a preliminary report on the causes of the Irish banking crisis told the Oireachtas Joint Committee on Finance and Public Service.

However, the authors of the report, former International Monetary Fund officials Klaus Regling and Max Watson, stopped short of blaming the crisis on the Fianna Fáil-led coalition government, in spite of being pressed on the matter by members of the Opposition on the committee.

“We came to the conclusion that there was not a lot of good advice,” Mr Regling said. “The Central Bank, with hindsight, should have been more outspoken.”

Mr Watson added: “Senior policymakers lacked information they should have had about banks when making decisions.”

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They also repeated a recommendation from the report that the Department of Finance and Central Bank needed greater resources to avoid a repeat of the crisis. He pointed to budgetary mistakes that worsened the crisis “because they were in charge”.

“The economic resources within the Department of Finance might be too limited,” Mr Regling said. While the crisis was largely “home made”, there was a significant international context.

“It would be quite easy to blame institutions or persons . . . but it would be too simple,” Mr Regling said. “To get the full picture of the sources of the crisis, one has to take into account the international context.”

He said fiscal policies globally were too lax, there was too much liquidity and surveillance of the banks was deficient.

Mr Watson heavily criticised supervision of Irish banks. “There were egregiously bad banking practices that should have been picked up in the supervisory system,” he said. “It was just bad and dangerous banking.”

Supervisory failings deserved investigation in some way, there was “clearly a culture of not rocking the boat”.

Mr Regling praised the Government’s response to the banking and economic crisis, saying it was the best in the euro zone.

“Both of us have the view that the crisis management in this country has been very good, particularly when compared with other countries in the EU.”

He said our future economic prospects are reasonable. “With the right policies I think [there are] good prospects for good growth again.”

Mr Regling said Ireland could look forward to economic growth again and there were good prospects for the country if the Government followed the right policies.

“Ireland is not ruined, that is my firm view,” he said, adding that Ireland still had a higher income per capita than the EU average but growth would not be as strong as before the economic crash.

The authors interviewed 100 people during their three months’ work. They did not meet Taoiseach Brian Cowen, who served as minister for finance up to mid-2007. Minister for Finance Brian Lenihan met them on two occasions.

Mr Regling and Mr Watson declined to disclose the content of their meetings with Mr Lenihan.

Mr Watson said he was very surprised at the extent of commercial property lending to a small number of borrowers, and that this was not noticed earlier.

“That is one of the things which should have been spotted by most people because of the volatility,” he said.

They said the economy was overheating by 2000 and that by 2006 a soft landing, which was widely predicted, was impossible.

The high level of public expenditure by the Government well in excess of economic growth and inflation and the boom in bank lending was known early on.