Simon Carswell of ‘Irish Times’ appears at Banking Inquiry

The relationships between banks, politicians, builders and regulators were too cosy in the run up to the banking crash to allow one group to "shout stop", Irish Times journalist Simon Carswell has told the banking inquiry.

However, Anglo-Irish Bank’s “frantic, last gap efforts to raise concerns and press influence in political and regulatory circles about its deteriorating funding position” proved the bank’s connections “were not so well-developed to be effective”.

Irish Times Washington correspondent Simon Carswell appeared before the Oireachtas Banking Inquiry to discuss the connection between State authorities, local authorities, banking institutions and the property sector during the lead up to the banking crisis, giving his view as a former finance correspondent who covered the crisis extensively.

Mr Carswell added that while the bank and Fianna Fáil were both close to builders and property developers, "it might be too far a leap to conclude that Anglo and Fianna Fáil were equally close".

“The bank and the party certainly had a number of deep contacts at the highest levels. My research found that these contacts bore little fruit for the bank, although it is unclear what influence Anglo’s developer customers might have had with their friends in politics.”

Washington correspondent with The Irish Times since January 2013, Mr Carswell was the newspaper's finance correspondent from September 2007.

He also worked for The Sunday Business Post and is the author of two books: Something Rotten: Irish Banking Scandals and Anglo Republic.

‘Long-standing relations’

Apart from Anglo-Irish Bank, Mr Carswell said “long-standing relations had developed between the political classes and the property-banking nexus” in the decade before the crash.

He cited as evidence developers donating money to Fianna Fáil, senior politicians mixing with prominent builders at “quasi social” events and former politicians working as lobbyists for construction and financial industry groups.

In his opening statement he said he would “characterise the relationship between the major players in the property sector and construction industry and government, certain elected representatives and the banks - as well as the relationship between the government, the banks and the financial supervisory authorities - as extremely cosy in the period leading up to the 2008 banking crash”.

Mr Carswell also said the various players followed each other and exhibited groupthink, with Anglo-Irish Bank “the one-trick pony in a frenetic land grab, leading a poorly regulated and highly competitive race for market share and profit”.

If any sectors of the “cosy group” had put their heads “above the parapet” and offered critical dissent, the crisis may have been avoided or may have been less severe.

“For these parties, it was too comfortable - and indeed self-serving for some - to stay in the crowd and stick with the consensus, particularly when so many people were making so much money.

“The result of this was that contrarians were ridiculed, silenced or ignored to ensure the credit-fuelled boom continued for years as their past warnings did not come true.”

Government policies

Policies such as incentives for the commercial property market and mortgage interest relief for investors increased activity in the property market, Mr Carswell said. While Fianna Fáil-led governments said they would phase out some incentives, they were extended as far as 2008.

“These decisions were taken after heavy lobbying by the construction industry. The government of the day said in 2004 that it would review these tax-based property incentives. In the 2006 Finance Bill some tax reliefs were eliminated by government while the decision was taken to phase out other reliefs up to 2008.”

The banks also lobbied to have the rules on what collateral could be used to borrow in the international money markets changed, including lobbying a senior member of government at a private dinner.

“The financial sector won out. The legislation was passed in early 2007, right at the peak of the property boom, making it easier for banks to borrow more money to provide more loans to more customers.

“The Financial Regulator was shown to be equally malleable by outside interests when it came to moves that might have taken some of the heat out of bank lending.”

Investigation continues

A number of current and former media executives will be appearing before the Oireachtas Banking Inquiry later this month as it continues its investigation into the collapse of the financial sector in late 2008 and its subsequent rescue by the State.

This module of the inquiry will focus on the role of the media during the property boom in the lead up to the banking crisis between 2002 and 2007 and any changes in approach after the crisis.