Central Bank had ‘no plan if Anglo failed’, says former Bank of Ireland governor

Richard Burrows says he cannot judge if blanket guarantee was right decision

 

The Central Bank had no plan in place if Anglo Irish Bank were to collapse, the banking inquiry heard yesterday.

Former Bank of Ireland governor Richard Burrows told the committee about the events leading up to the decision of the government to guarantee the six main lenders. He said he could not pass judgment on whether the blanket guarantee was the right decision at the time.

“I would say that, in my view, the immediate funding requirements of Anglo Irish Bank could have been dealt with by a guarantee of the financial support which Bank of Ireland and AIB were prepared to make available in the short term to Anglo Irish Bank [subject to that funding being guaranteed by the government].

“Such a decision may have given the government more time to consider its options. However, the government chose to guarantee all financial institutions presumably to address the risk that a more limited form of guarantee could have led to a run on Irish banks.”

Mr Burrows later said the guarantee was necessary but questioned whether the government took enough time to consider its options.

The inquiry also heard about his decision to request a high-level meeting with the government on the night of September 29th, 2008.

‘State of desperation’

Mr Burrows said he met Anglo chairman Seán FitzPatrick and chief executive David Drumm for 45 minutes earlier that day. He told the inquiry Anglo was in a “state of desperation” and asked the bank to help in any way they could.

Mr Burrows said: “They had their hands in the air, they were in serious trouble. It was perfectly obvious Anglo was in imminent danger of collapse the following morning.”

Mr Burrows later met then Central Bank governor John Hurley. Mr Burrows said he told Mr Hurley the situation was “extremely serious” for the banking establishment.

He said: “I explained my concern at the difficult position that could result from the default of Anglo, and I asked if there was a plan in place to deal with this situation.

“I was surprised to learn that there was not, and it was Mr Hurley’s guidance to me that if I wanted to take matters further that I should make an approach to government.”

Severity

Mr Burrows then met his chief executive Brian Goggin and suggested a meeting with the government. He contacted Dermot Gleeson, chairman of AIB, to ask him to attend.

He said: “I led on behalf of the four of us to explain to the taoiseach [Brian Cowen]. The reason for seeking a meeting was to make sure the government was fully aware of the severity of the situation.”

Mr Burrows said the banks did not go in with a solution but to make the government aware of the seriousness of the scenario. He did not go seeking a guarantee, insisting Bank of Ireland was solvent and had “60 days of visibility”.

He said AIB and Bank of Ireland were asked to provide €5 billion each and had agreed to do it. He said he was aware leaving Government Buildings that a six-bank guarantee would be put in place and a cabinet meeting would take place later in the night.

This differs from evidence given by AIB that they learned of the decision through the media the following morning.