Giving the banks a reality check

In her first interview since taking on the supervision of the banks, Fiona Muldoon talks about what motivates her in her role at the Central Bank

A PROBING question from her son about her generation’s role in the financial crisis led to some soul-searching by Fiona Muldoon and a decision not to sit around complaining about what went wrong but to do something about it.

Shortly after returning to Ireland – following years of working abroad – she packed in a lucrative career in the financial services sector last year for a job regulating it.

Muldoon took up the new role of director of insurance supervision at the Central Bank in August 2011 and the scope of her job widened in March when she took responsibility for supervising the banks as well. She reports to the deputy governor in charge of regulation, Matthew Elderfield.

“I joined because I wanted to be doing something other than sitting on the sidelines griping about the fact that we got it wrong,” she says in her first interview since taking on the supervision of the banks.

After returning to Ireland, her son was watching the bad news about the economy and noticing how people were in a bad mood. One day he asked his mother: “Aren’t you the generation that ruined the country?”

Muldoon says she can see a generation of bright kids coming up and wants to be involved in correcting the regulatory failures in the industry that she had chosen for her career. “A large part of coming home was about the family and a large part of my motivation in being here is about trying to fix it.”

Muldoon now has 167 staff reporting to her on banking and credit union supervision and about 95 on insurance regulation.

Speaking in the Central Bank’s offices behind the National Convention Centre in the Dublin docklands, Muldoon has a good view of the skeletal building, the one-time proposed new head office for Anglo Irish Bank, that will be the Central Bank’s new offices following its €7 million acquisition from the National Asset Management Agency.

It is a reminder of the devastation caused by the banking crisis. One part of the financial repair job that is taking up much of Muldoon’s attention is challenging the banks on whether they are reacting sufficiently to the mortgage crisis.

She has met the board of AIB to impress upon it the importance of making sure staff deal with problem mortgages – devising new products to resolve them or taking appropriate enforcement action to address the bad debts on their books.

The banks have been directed to “segment” their mortgage books into categories – loans that can be repaid with forbearance (such as interest-only for a period) and loans that will never be repaid. In the latter category, they will need to modify certain loans with new products and foreclose on others.

The sharp increase in arrears has brought matters to a head.

The number of home loans in arrears of 90 days or more soared to 77,630 at the end of March – or one in 10 mortgages, compared with 49,609 in March 2011.

The value of mortgages that are in arrears or have been restructured to help the borrower repay them rose to €21.7 billion or 19.3 per cent of owner-occupier mortgage debt, up from €15.8 billion or 13.6 per cent a year earlier.

Plans to solve this crisis fall under the mortgage arrears resolution strategies or MARS that the Central Bank has demanded of the banks ahead of the introduction of the new personal insolvency regime which will create formal out-of-court systems to write down unsustainable mortgage debt.

“The scale of the mortgage arrears problem has been of a greater order than maybe the banks expected and they haven’t got enough scale to be able to deal with that,” she says.

This is why Muldoon and Elderfield are raising questions with the banks and challenging them directly – do they have the staff to tackle the problem, do they have the right systems in place, are they reporting progress to their boards and is it being properly managed?

“I would say the banks are not ready. They would say that they were doing other things, that there were a lot of other fires to be put out. There is an element of truth in all of that.

“However, depending on when you start the clock – three or four years into the current situation – it is becoming more and more pressing for them to be ready.”

Privately, the banks complain that the Central Bank’s code of conduct to protect customers in arrears may have stymied efforts to collect on loans and to take more effective action to tackle the problem, as it limited the contact banks could have with borrowers.