Central Bank to increase staff to boost regulation

The Central Bank is to hire 150 staff as part of a comprehensive series of changes in its structure and approach to banking supervision, it has announced.

As part of measures to beef up its resources, total Central Bank staff numbers will increase to 1,300 by the end of this year, with a further 150-200 staff added by 2012.

The regulator will set up a specialist team to examine the business models employed by financial companies for signs of risky practices in a bid to stave off future financial crises.

As part of its response to the regulatory failures highlighted by Central Bank governor Patrick Honohan and the economists Klaus Regling and Max Watson, a minimum of 10 supervisory staff will be assigned to major institutions.

The Central Bank is outlining its plans for “more intrusive” regulation to bank executives this afternoon.

It is expected that this will involve intervention by the regulator when it deems that commercial decisions made by banks are imprudent.

It will also mean that financial institutions will have to contribute higher sums of money towards their own regulation.

It has identified four major areas where its supervision will immediately focus. These are new credit standards for mortgages; remuneration policies at banks; risk management and governance and bank strategies.

Banks that have been slow to change their internal culture on key issues such as remuneration and that are otherwise failing to get to grips with past failures will act as “a drag anchor on the recovery of public confidence in the wider banking system”, said Jonathan McMahon, assistant director general for financial institutions supervision at the Central Bank.

“There are still some laggards out there,” he said.

It is hoped that “deeply problematic” business models, such as those at Quinn Insurance and Anglo Irish Bank, will be identified at an early stage by the regulator’s new team of prudential analysts under the new regime.

Mr McMahon added that failure to improve lending standards and examine its controls on consumer credit after the boom-and-bust cycle of property prices would be “unforgiveable”.

A review of the credit practices employed in new mortgage lending will be published next month.

“We have to contemplate doing some things that maybe sit slightly uncomfortably with the free market approach of the past,” Mr McMahon said.

The regulator is stressing that it was not just “one big mistake” that led to the financial crisis, but a combination of errors which require across-the-board changes in its structure and behaviour.

Under a proposed new system for assessing risky behaviour by the banks, it is proposing to categorise financial companies as high, medium-high, medium-low and low risk on indicators such as level and quality of capital, liquidity, size of deposits and lending practices.

Patrick Brady, the Central Bank’s assistant director general for policy and risk, said the regulator expected to see “informed, risk-assessed banking practices, not blind pursuit of competitor practices or of the markets”.

The Central Bank has also announced two new key appointments in banking supervision. Shane O’Neill is the new head of retail banking supervision, while John Moran will be his counterpart on the wholesale banking side.