THE COMMISSION of Investigation into the banking crisis should be deferred to allow Government reflect on a better way of inquiring further into the causes of the meltdown, Central Bank governor Patrick Honohan has told an Oireachtas committee.

Speaking on his report last week – one of two published into the crisis – Prof Honohan warned that the six-month statutory commission could become “a juggernaut” trying to cover many issues.

“It wouldn’t have to be a juggernaut but there is a danger that, if we don’t know what it is going to be, that it would actually crawl to cover everything,” he said.

Dr Honohan suggested holding back on the commission and to reflect over the summer whether it was the best approach to be taken next to understanding the crisis.

“I think at this stage that the idea of a Commission of Investigation is not really fully fleshed out and that once you start down that road or you commit to it, and propose stuff and off you go, you are into a process which I don’t see where it is going exactly,” he said.

It may be better first to hold public hearings and hire outside independent consultants from overseas to investigate and report on why bank managers broke their rules by lending excessively to the property sector and also to examine the role played in the crisis by auditors and accountants.

“Let’s hold back on this for a while,” Dr Honohan told the Oireachtas Joint Committee on Finance and the Public Service.

He had difficulty understanding the Government’s goal and motivation for the commission and that its terms of reference were “not very well defined” and that its modus operandi was “not clear”.

Public hearings would help understand attitudes but fact-finding was best held privately.

“I feel that we still don’t know enough [about] the risk management and decision process in the major banks, and how they failed to avoid disaster,” he said.

An independent review of risk management and governance at the two biggest banks, AIB and Bank of Ireland from 2003 to 2008 would be “a useful exercise on a forward-looking basis”. The Central Bank would examine this if no one else did, he said.

“The potential role of accounting and auditing professionals is another matter that deserves additional factual exploration,” he said, but added that this should be deferred until after the National Asset Management Agency had acquired more loans, as the agency had revealed issues around loan documentation.

There may also be a case for a study on the operations of mortgage brokers in selling loans during the boom, he said.

Prof Honohan said he had thought about interviewing the Taoiseach, Brian Cowen, for his report but chose not to as he had an opportunity as Central Bank governor to do this if needed.

It would have been better to keep Anglo Irish Bank bonds out of the guarantee scheme in September 2008, he said, but it would have led to “terrible criticism” across Europe if the Government allowed an Irish bank to fail.

The Central Bank-Financial Regulator was not aware until late in 2008 that Anglo was facing insolvency and “a €20 billion problem” and, as a result, the Minister for Finance did not know either.

Allowing Anglo to fail would not have saved the €14 billion that the State has committed so far to the nationalised bank and it would have cost a much larger sum than €20 billion, he said.

He didn’t know yet whether dated subordinated bonds in the nationalised Anglo Irish Bank would be “made whole” or repaid once the guarantee ended. The bonds were “still in play”, he said.

The authorities were only concerned with liquidity as foreign lenders withdrew deposits from Irish banks.