Central Bank had to ‘pull punches’ despite indicators

The Central Bank had to “pull its punches” in relation to concerns about the economy despite indications of great difficulty ahead, its former assistant director general told the banking inquiry on Wednesday.

Thomas O’Connell was appointed assistant director general and chief economist of the bank’s economics division in April 2005. His responsibilities included economic analysis, research and publications, monetary policy and financial stability.

Mr O’Connell said it was his opinion as early as 2001 that “things were going crazy” and a “massive” property bubble had developed. Financial Stability Reports however tended to include “reassuring” summaries that did not correlate with their data.

“You have the body of the (2007) report (with) all the indicators pointing in the wrong direction and then you have an overall assessment of what’s happening...If I was asked to do an objective assessment on the basis of the indicators I would be inclined to say ‘yeah we’re heading for big trouble’, but a Central Bank being a Central Bank, can’t really say that. It has to sort of pull its punches really.”

Mr O’Connell also said contrarian views in the Central Bank “weren’t well received”, and concerns had been “blocked” from reaching a higher level in the bank due to “political and property interests on the bank’s board”.

Asked if he raised objections to this culture, he said: “Maybe not because I probably knew that what the board says goes. I probably didn’t object as much as I should have done.”

Asked whether he ought to have considered resigning, he said: “I don’t think that would have had any effect...I probably could have retired early.

“You must remember at that time people were on a high. The boom was going ahead. You’d be dismissed as a maverick. You kept battering away trying to convince people.”

Asked whether he had been successful in that regard, Mr O’Connell said: “I wasn’t successful, no. The proof is in the pudding.”

Mr O’Connell was also asked whether he had raised his concerns with anyone from outside of the Central Bank.

He said he had attended meetings with the second secretary of the Department of Finance and had “certainly said to him that things were going crazy and we needed to rein things in”.

The response to this, the inquiry heard, was “nothing significant, just noting it really.” At that time, he said, the general view “seemed to be that we were on a roll and things were different here”.

Earlier, the inquiry went into private session for a time after Fianna Fáil senator Marc McSharry said there was “a lack of credibility” to some of Mr O’Connell’s replies.

Committee chairman Ciaran Lynch said Mr McSharry was prohibited from making “value judgments” in relation to the evidence.

Mr O’Connell joined the Central Bank in 1970 as an economist. He was appointed assistant director general of the economics division in April 2005. He retired in 2010.