MINISTER FOR Finance Brian Lenihan has gone to some lengths in recent days to show that he has driven a hard bargain with the banks in exchange for the taxpayers' support in their hour of need. Two figures have been put into the public domain by the Minister. The first is the price he says the banks will pay for the assistance of taxpayers - €1 billion over two years - and the second is his "personal view" that senior bankers should be subject to a pay cap of €500,000 a year.
The Minister has published the details of the scheme under which the State will guarantee some €485 billion worth of bank deposits and borrowings and while it certainly gives him scope to fulfil his public commitments, the specifics of how it will be done are not explicitly stated. That is the nub of the issue now.
On the face of it, the Minister has given himself the powers he needs to bring about an overhaul of the Irish banking system. The scheme contains several mechanisms by which the banks can be directed to behave in a more prudent fashion but it is far from clear that he has either the will, or the appetite, to do so in the face of what will be a trenchant and well marshalled rearguard action from the banks.
Another uncertainty in the event of the Minister choosing to exercise his powers to the full, is whether or not he actually has the firepower to carry it through.The regulatory structure, centred around the Central Bank through which the change would presumably be effected, has been found sorely wanting and lacks muscle.
There is a clear imperative for radical action. The Irish banking industry is not - as many are trying to maintain - the victim of circumstances beyond its control. International factors may have exacerbated the problem. But, international banks that followed prudent lending policies are prospering. This fact alone helps to understand the extent to which the Irish banks played a part in their own downfall. Likewise, the top management at our banks cannot get away with holding themselves out as hapless victims of a global credit crunch. They were paid extremely large amounts of money to run the banks. They should have done a better job but they didn't.
In just about every other jurisdiction where the Government has been forced to step in and rescue its banks, senior executives have resigned. This is particularly true of the UK where the banking culture - in most other respects - parallels our own.
The Government could send a very clear signal about its intention to follow through on both its fine words and also the potential for sweeping changes to the way banks operate by insisting on accountability at the top.But that seems an unlikely prospect as long as the Government persists with the same charade as the banks: namely that the current global financial turmoil, rather than domestic mismanagement, is the source of our economic ills. For the time being at least, the Government, the banks and the regulator all seem intent on hanging together.