It was showtime at the Oireachtas banking inquiry on Thursday. After a couple of quiet performances before Christmas involving Peter Nyberg and Rob Wright, the inquiry finally came to life with an energetic routine from Central Bank of Ireland governor Patrick Honohan.
This was Act One at the inquiry for Honohan, who was asked to parse his report to the Government, completed in May 2010, which looked at regulatory and financial stability policies in the five years leading up to the 2008 crash and the performance of the Central Bank and the financial regulator.
Act Two will come in April, when he will don his hat as governor of the Central Bank and answer questions about events that have happened on his watch – he took over in September 2009.
The professor is well able to talk, often without saying very much. This marathon three and a quarter hour grilling saw him duck a few questions but it also included some colourful insights into the night of the bank guarantee, September 29th, 2008.
Honohan said that the then minister for finance, Brian Lenihan, had wanted to nationalise Anglo Irish Bank and Irish Nationwide Building Society "there and then" and was against covering subordinated debt but was "overruled on the night" by a more senior politician in the room.
Finger of blame
He wouldn't name the person but the finger of blame appeared to be pointing firmly in the direction of former taoiseach Brian Cowen.
The professor also went somewhat beyond the findings in his report five years ago by stating that Anglo and INBS should have been liquidated.
Asked by Fianna Fáil’s Michael McGrath if Anglo should have been allowed to fail in September 2008, Honohan replied: “Yes, certainly.”
“Anglo was a bank that Ireland could have done without . . . indeed, we’re doing well without it now,” he had earlier told Fine Gael’s Kieran O’Donnell.
That said, Anglo was of "systemic importance" at that time by virtue of the chaos that was unfolding around it. In the governor's view, Ireland should have extended emergency liquidity assistance to Anglo and INBS rather than the blanket guarantee. That would have bought us a few days, during which we could have consulted with the European Central Bank and other EU governments and cobbled together a different solution.
Pariahs
We might also have avoided becoming pariahs for taking such unilateral action. However, there would have been no blank cheques coming from the ECB. “No, no, no,” he said.
The net cost of rescuing the banks – he initially termed it the bank guarantee but corrected this under questioning from McGrath – will be about €40 billion.
That's higher than the €34 billion Minister for Finance Michael Noonan suggested in his opinion piece for The Irish Times this week. The difference relates to how much we might ultimately get for AIB, which is back in profit and on the road to privatisation.
Honohan’s appearance provided the meat and drink this inquiry needed. What a shame that it could be another three months before the next substantial local player in the financial crisis appears before the committee.
The inquiry is seeking documents and other materials from the main banks, the departments of the Taoiseach and Finance, and the liquidators of IBRC.
It is understood that up to one million pages of material has been sought from the Department of Finance, which has raised issues of cabinet confidentiality and what it believes to be a tight deadline for the handover.
