Oireachtas hearings show banks have not changed

Business Opinion: Irish banking five years after the financial crash appears still to be primarily about short-term profitability

Bank of Ireland chief executive Richie Boucher (centre) arrives at Government Buildings for the Oireachtas finance committee hearings last week. Photograph: Dara Mac Dónaill

Bank of Ireland chief executive Richie Boucher (centre) arrives at Government Buildings for the Oireachtas finance committee hearings last week. Photograph: Dara Mac Dónaill

 

It is relatively easy to demonise Richie Boucher. First of all he is the chief executive of an Irish bank. Secondly he is the only bank director from the time of the crash to have held on to his job. In fact, he was promoted. He is also capable of being quite blunt when he chooses.

Hence the danger in reading too much into the rather different tone struck by Mr Boucher compared to his peers at last week’s Oireachtas hearings into how the banks are dealing with mortgage arrears.

The Bank of Ireland chief executive certainly went a step further than his counterparts in AIB, Ulster Bank and Permanent TSB by stating categorically that personal debt write-offs are not bank policy. He was also unapologetic about being utterly focused on getting the bank back into profit and out from under the State’s skirt.

Repossession
However, none of this amounts to proof that he has any more enthusiasm for throwing people out of their homes than his peers in the other banks. It is early days, the loophole exposed by the so-called Dunne judgment preventing repossessions has only just been closed but Bank of Ireland does not seem to be straining at the leash to start repossessing houses.

The interesting question is why did Mr Boucher do it? Why did he go to such lengths to paint his bank as less sympathetic to the plight of the thousands who, through no real fault of their own, find themselves facing the truly awful prospect of losing their homes.

The answer is because he could. David Duffy, Jeremy Masding and Jim Brown might not have said what Mr Boucher said but they probably wanted to.

One suspects that if the British or Irish Government only owned 15 per cent of their respective institutions they would have sung tunes a little more like Mr Boucher’s. Maybe they would have taken less trouble to put a compassionate gloss on the approach being taken by their banks towards indebted borrowers.

All four men are cut from the same cloth. They have forged successful careers in retail banking and understand well the concept of moral hazard and its asymmetric application in banking.

The taxpayer may have bailed out the banks to the tune of €64 billion but that does not equate to a moral argument – in the banks’ eyes – for bailouts for individual taxpayers . The old rules still apply. If people don’t repay their debts, banks don’t make profits and making profits is the purpose of banks, whether they have been rescued by the taxpayer or not. Chief executives going around talking about forgiving mortgage debt is not conducive to getting the maximum number of people to repay the maximum possible amount of money. Not conducive to profit.

The banks would argue that the taxpayer is better served by their being returned to profit as soon as possible. It’s a reasonable point, although the size of the mortgage problem here and the wider economic arguments for some sort of speedy and comprehensive solution trump it as far as most of us are concerned. But if last week’s hearings are any guide, the banker’s view prevails.

Lehman Brothers
And maybe that is really the most interesting thing about last week’s hearings. They were the best Irish illustration to date of something that we will be hearing quite a lot about as the fifth anniversary of the collapse of Lehman Brothers rolls around this month: how little seems to have really changed in banking.

Despite provoking a near collapse of the global economy, the world’s banks have been pretty much left to carry on as before. They will be required to put a bit more money aside for the next time things go wrong but attempts to regulate them more tightly seem to have foundered on the rock of national self-interest as the memory of 2008 faded.

They have learned a lot about the dangers of securitising debt but not much about the the need for banks to be of benefit to society rather than the other way about.

In the rather more prosaic context of last week’s Oireachtas hearings, signs of a fundamental change were equally scarce. If you accept Mr Boucher was saying what his peers also thought but could not say, then Irish banking five years after the crash is still primarily about short-term profitability and all that goes with that.

Perhaps the only really surprising thing is that anyone thought it would be any different.

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