Time for law-makers to listen to the Central Bank

Cantillon: Central Bank knows what rules are needed to change the culture in banks

The Central Bank was rightly called out by politicians late last year for not bringing banks to heel quickly enough over the tracker-mortgage controversy.

But the regulators have fired the ball back into the Oireachtas' court in a report that they have been ordered by Minister for Finance Paschal Donohoe to write up, on the culture in Irish lenders in the wake of the scandal.

The Irish Times reported earlier this week that the report, which is expected to go to Cabinet next week and published thereafter, recommends that a so-called senior managers regime be set up in Ireland, similar to one introduced in the UK three years ago. It would require top bankers to submit a clear statement on their responsibilities to the Central Bank – making it harder for them to pass the buck in the event of wrongdoing by a firm.

Such a system, while requiring legislative changes, would make it easier for the Central Bank to hold individuals to account if problems emerge – and would act as an incentive for lenders to raise their standards of governance and help restore consumer confidence in the sector.



It follows on from a Central Bank submission almost two years ago to a Law Reform Commission paper on regulatory enforcement and corporate offences, in which the bank pressed for laws to make "egregious recklessness" by the heads of banks and other financial firms a criminal offence in the event of a company's failure.

Instead, over the past two years, we’ve seen legislative attempts to give the Central Bank powers to regulate mortgage interest rates and overseas buyers of non-performing loans from Irish banks – powers that the regulator says it does not want or need. (The Central Bank has argued in the latter case that it already supervises service providers managing the loans for so-called vulture funds on a day-to-day basis.)

If law-makers are truly interested in accelerating a change of culture in the banks, which have had to set aside €1 billion to deal with the tracker issue, they would do well to listen to the Central Bank’s take of what rules are really needed.