Draghi says ECB wasn't consulted on bank guarantee

Sinn Féin has again called for the European Central Bank to participate in the Oireachtas banking inquiry after the ECB said this week that it did not order Ireland to protect bondholders during the financial crisis.

The call comes after ECB president Mario Draghi said in a letter to Sinn Féin MEP Matt Carthy on Tuesday that the bank was not consulted about the introduction of the bank guarantee in September 2008.

Last year Mr Draghi said that the ECB would not formally participate in the banking inquiry, saying it was not accountable to national parliaments. Sinn Féin said on Thursday however, that ECB participation in the inquiry was necessary if the public was to get the answers it needed.

"This letter is a clear attempt by the ECB to distance itself from the decisions which led to the Irish Government nationalising private banking debt. Meanwhile, Fianna Fáil still insists that the Irish Government was left with no other choice but to guarantee the banks and enter into a bailout arrangement as a result of the threat of the ECB not to provide emergency funds. What we are witnessing here is a merry-go-round whereby both the Irish Government and the ECB each try to shift the blame onto the other, drip feeding information to the public seven years on and trying to avoid responsibility for their part in our banking crisis," said Mr Carthy.

In the letter sent to the Irish MEP earlier this week, Mr Draghi denied claims that the ECB was aware of the bank guarantee scheme ahead of time. He said the bank did not have the power to order the then Government to protect bondholders.

“The decision on the modalities of the Irish credit institutions was taken by the Irish authorities, in accordance with the EU/IMF,” Mr Draghi said.

"The ECB was neither made aware of nor consulted beforehand on the implementation of the Credit Institutions Financial Support Scheme (CIFS) guarantee, and took a critical view of the two-year government guarantee of bank liabilities," he added.

Mr Draghi said however that the guarantee had provided some initial relief when introduced.

“The guarantee to some extent relieved the liquidity challenges facing the Irish banking system as a result of the money market turmoil that emerged in 2007 and the unbalanced and then unsustainable funding composition that underpinned large parts of the banking sector. However, it could not fully alleviate these problems, as money markets became illiquid, leading the banks to become increasingly reliant on Eurosystem operations. Over the course of the guarantee, this substitution of unsecured money market funding with secured central bank funding brought collateral problems to the fore, an issue exacerbated by continued ratings downgrades,” he said.

ECB Participation

Mr Carthy said more needed to be done to encourage the ECB to participate in the banking inquiry.

“It is simply not good enough -the Irish people want and need answers. Those in power need to be held to account for the financial decisions which have heaped such hardship on thousands of Irish families. In my view, the only way this will be achieved is for both the ECB and the Irish Government to be fully involved in the banking inquiry. Otherwise, the role of the inquiry to in determine the actual sequence of events which contributed to our financial crisis and holding those responsible to account will be made much more difficult, if not impossible.”