There is a part of me that wonders whether we can really cope with yet more debate on what happened in the run-up to the banking crash and subsequently as we headed towards the EU/IMF bailout. It’s not as if we don’t have enough of today’s problems to sort out, after all. Perhaps, to use that awful phrase, it is time to “move on”.
But there are a few things that still niggle, a few pieces of the jigsaw that still remain murky. Two things may help to fill in some of the gaps. It seems like we will shortly see the release of the much-discussed letter from ECB president Jean Claude Trichet to former finance minister Brian Lenihan just before we entered the bailout in November 2010.
Meanwhile, finally, the banking inquiry looks set to begin its formal work in the next week or two, with behind-the-scenes preparations already under way. In all the corners it could look in to, one of the more profitable might be what actually went on within the banks themselves and how it took so long to get to the bottom of the holes in their balance sheets
Policy lessons
It would be easy to argue that there are some major public policy lessons to be learned from all this – that we can avoid making the same mistakes again. But this doesn’t hold a lot of water. The trouble with inquiries and disclosures so long after the event is that the moment is well past and so are the policy implications, or consequences for individuals concerned, most now retired with nice pensions.
Yes we need to learn how to stop a new property bubble , but I suspect the main issue we now face is keeping growth going, rather than slowing it down.
No, a lot of this is more about some kind of catharsis – about satisfying our desire to find out what really happened. And, let’s admit it, it is also quite entertaining to see details of “secret” correspondence and to see senior bank directors and executives explain how exactly they got into a hole and kept digging.
So where are the gaps? I think the banking inquiry, chaired by Labour TD Ciarán Lynch, is likely to focus on whether everyone believed, as we headed for the bailout, that the banks were fundamentally sound; and on why it took so long to discover but how bad things were.
Plenty of capital
I remember sitting with two then senior AIB executives around about the time of the guarantee, as they argued they had plenty of capital in their balance sheet. They were only about €20 billion out in their calculations. Were these gents and their counterparts elsewhere in denial? Did they really believe their own spin? A trawl of the records by the banking inquiry might throw light on all this. Did the banks conduct their own internal probes about what went wrong? Here, as a source suggested, would be an interesting place for the inquiry to start.
It took an extraordinary length of time after the bailout – about a year-and-a-half – for us to get a real feel for the mind- numbing figures facing us to bail out the banks.Yet subsequent documentation released by the Department of Finance shows some senior officials feared big holes might be found in Anglo and Irish Nationwide, even before the guarantee was granted.
The lurch into the bailout came more than two years later. We know the outline details – a State and a banking system running out of cash. But precisely what role did the ECB play and did it overstep the mark?
The Trichet letter contained a threat – quite explicit it appears – to cut off the emergency cash supplies that the Central Bank was supplying to the Irish banks, unless Ireland applied for the bailout.
The release of the letter will point to a strange misjudgment by ECB president, Trichet. By the time the letter was sent – November 19th, 2010 – Central Bank governor Patrick Honohan had already appeared on Morning Ireland. While Ireland did not formally apply for a bailout until the following Sunday, the 21st, the bailout team were already in Ireland.
Last push
Trichet and the ECB hawks seem to feel that Ireland needed a last push. Maybe with €180 billion extended to the Irish banking system at the time of the bailout, of which some €50 billion was emergency lending from the Central Bank of Ireland, the ECB felt it was just protecting its own house.
Whatever about that, its continued insistence, even at that late stage, that senior bondholders in the banks be fully protected was perverse.
These arguments are all academic now, with most of the bondholders paid and Ireland out of the bailout. The world has moved on. Of course this is why the ECB now feels that it can release the letter – because, bar a kicking for a few days, it won’t mean very much.
So many years on, the banking inquiry will also have to fight to be relevant to the public. It is a fight it can win if it is smart, concentrates its fire and if the Government lasts long enough to let it report.
It may not mean much for policy in future. It may only mean passing embarrassment for those called to give evidence. But we do still deserve to hear a bit more of the story of why we ended up on the hook for €64 billion.
