THE GOVERNOR of the Central Bank, Dr Patrick Honohan, has called for an inquiry into the causes of the banking crisis similar to a US congressional hearing into the 9/11 terrorist attacks on the US.
Speaking at his first appearance before an Oireachtas committee since being appointed governor in September, Dr Honohan said new models of inquiry involving not just politicians but experts such as economists and social scientists should be explored to understand how the crisis occurred.
“The crisis is not simply a question of discovering who did what and who knew what,” he told the Joint Oireachtas Committee on Economic Regulatory Affairs.
“Understanding the deep roots of the crisis will require expertise and broad scientific understanding more than merely forensic skills.”
Dr Honohan answered TDs’ questions candidly about the causes of the crisis and spoke about further measures needed to repair the banks and overhaul financial regulation.
He told the committee nobody could deny there had been “a serious failure of the regulatory system”. “The regulation should have been more proactive in preventing the rapid growth in lending,” he said.
He conceded that State ownership of one or both of the two biggest banks – Allied Irish Banks and Bank of Ireland – may rise to 50 per cent, after they incur losses and require additional capital, following the discounted sale of a combined €39.5 billion of their loans to the National Asset Management Agency (Nama).
Dr Honohan agreed the two banks would need significantly more capital in addition to the €7 billion injected by the State, but the Central Bank could not yet determine the figure required until each Nama loan was valued. He said he was “sure” the average discount to be applied to the €77 billion in Nama loans would be different to the 30 per cent estimate forecast by Minister for Finance last September.
Future regulation would be based on both rules and principles, and greater levels of enforcement, he said, while regulators needed to “trust less and verify more”.
Dr Honohan said it would have been better if the banks had appointed “more outside people” but that the internal appointments at the two big banks were “competent” and “experienced” bankers.
Fianna Fáil TD Sean Ardagh asked the former Trinity professor how an academic would “match up” to the bankers he has to regulate.
He said that this was “not a big problem for me” as he had been in “so many bank boardrooms” and offices of central bank governors during his research and work in “policy environments”.
“I may not be a banking type. I may not play golf as well as the bankers but I know what bankers do,” said Dr Honohan.