Admissions about lack of banking experience in regulator are shocking

Testimony to the banking inquiry reveals shortcomings of the Financial Regulator

Brian Patterson, former chairman of the Financial Regulator: said they did not see the enormity of the risks being taken by the banks. Photograph: Mac Innes Photography

Brian Patterson, former chairman of the Financial Regulator: said they did not see the enormity of the risks being taken by the banks. Photograph: Mac Innes Photography

 

Another day, another seven hours of detailed testimony at the Oireachtas banking inquiry. Liam O’Reilly, a former chief executive of the Financial Regulator, and Brian Patterson, a former chairman, both now accept the shortcomings of the organisation from its establishment in 2003 up to the crash in 2008.

Patterson said the regulator had an overly complex structure with a broad mandate, which prioritised consumer protection, with constrained powers and limited resources devoted to banking supervision.

The “complex entanglement” with the Central Bank limited the regulator’s effectiveness with some issues falling between the two stools.

Patterson said the regulator’s processes and reports, and the findings of external scrutineers, any of which should have raised red flags, failed to do so. As a result, they did not see the enormity of the risks being taken by the banks and the calamity that was to overwhelm them.

It was a stunning admission. It is also shocking to realise no one on the board of the regulator had any banking regulation experience.

Patterson, a former senior executive with Waterford Wedgwood, acknowledged his shortcomings as chairman, namely his lack of banking or regulation experience.

Both men articulated their regret and seemed sincere in their delivery. There was none of the buck passing that Pat Neary, who succeeded O’Reilly in 2006, and former Central Bank governor John Hurley engaged in last month.

Lapses

However, their evidence highlighted lapses in judgment after retiring from the regulator. In November 2008, two months after the bank guarantee, Patterson attended a dinner hosted by the Irish Banking Federation to mark his retirement earlier in the year. The guest list included senior bank executives.

Patterson was undergoing treatment for cancer and didn’t enjoy the occasion. But the perception has persisted of bankers enjoying a knees-up just weeks after taxpayers saved their skins.

O’Reilly accepted a directorship with Irish Life & Permanent in September 2008. Jobs for the boys, some would say. That same month, the Central Bank was trying to persuade Bank of Ireland to acquire IL&P amid concerns about its financial stability.

These are small matters in the context of the overall crash, yet they highlight that, even in late 2008, bankers and regulators still hadn’t grasped the magnitude of the events unfolding.