Mortgage caps would undermine bank, says ex-IMF executive

Donal Donovan says proposal is an attempt by politicians ‘to push Central Bank around’

Donal Donovan: A lack of independent regulation by the Central Bank and Financial Regulator in the past was one of the roots of the crisis. Photograph: Dara Mac Dónaill

Donal Donovan: A lack of independent regulation by the Central Bank and Financial Regulator in the past was one of the roots of the crisis. Photograph: Dara Mac Dónaill

 

The independence of the Central Bank must be protected and the recent proposed legislation on mortgage rate caps threatens to undermine this, according to Donal Donovan, a former senior IMF executive and the author of a new report on the measures Ireland needs to take to avoid another crisis.

Legislation proposed by Fianna Fáil, to allow the Central Bank to cap mortgage rates has now gone to committee stage, despite Government objections to it. The Central Bank has said it does not favour this approach, which Mr Donovan has described as an attempt by politicians “to push the Central Bank around and tell it what to do”.

A lack of independent regulation by the Central Bank and Financial Regulator in the past was one of the roots of the crisis, he pointed out, and safeguarding its independence to do “ unpopular things” was vital to maintain stability in the future.

Mr Donovan, now adjunct professor at the University of Limerick, is the lead author of “Never Again – Averting Another Crisis”, a new report published by think-tank PublicPolicy.ie and available on that organisation’s website. The report involved study of policies and institutions in similar sized countries such as those in the Nordic region, the Netherlands and New Zealand.

Political pressures

The report also calls for the Civil Service to take a more active role in advising Ministers, arguing that in the period leading up to the crisis “the quality and independence of civil servants – in particular the furnishing of expert and forthright advice on economic and financial matters and associated risks – was perceived to have been inadequate”.

There may be a case for a separate body to oversee departmental performance, it says.

New measures are also needed to ensure that civil servants provide Ministers with detailed written advice on key issues, it says, arguing that there is evidence that Freedom of Information (FOI) provisions mean this is not often done. Policy deliberations should be explicitly excluded from FOI requests to allow this to happen, it says, though to balance this all such records should be released within a period of about five years .

Budgetary risks

Department of the Taoiseach

The report also supports the goal of the programme for government to establish an independent budget office in the Oireachtas.