[Last in Series …. For Now]
Speaking with Myles Dungan on RTE radio on Thursday, Minister Eamon Ryan put forward the following argument against nationalisation:
You have to run the whole bank, the system, from Merrion Street … And there’s no ability, I believe, in the Department of Finance to run six banks at the one time … They [the Department of Finance] recognise that you don’t just suddenly start running six banks. And you can’t do it in a very transparent way.
I think the Minister raises a fair concern here, so I thought I’d throw this one out there as my final (for now) post on this.
I will concede that nationalisation would certainly put additional pressure on the staff at the Department of Finance and new staff would need to be recruited. That said, I don’t think the lack of current banking expertise in the civil service is necessarily a crucial argument against nationalisation. I’d make three points on this.
First, one could easily imagine a world in which the ESB and Bord Gais were private companies and Minister Ryan, when asked about nationalising them, would say “Sure the officials in my department don’t know anything about the complex details of how to run an electricity or gas company.”
This might be true, but it would hardly mean that these companies couldn’t be run as independent semi-state companies reporting to the Minister, with civil servants involved in regulation and setting policy goals. This is, as I understand it, the way the Department of Communications, Energy and Natural Resources operates at present. Similarly, the day-to-day operation of the newly-nationalised banks can and should take place at arm’s length from civil servants.
Second, in light of the amount of public money at stake, there is no reason why the government should not recruit the best available financial expertise to run these banks. There is a need for a review of all senior management in these banks and for the replacement of those whose poor decisions ran these institutions into the ground.
Executives of the newly nationalised banks should be given a clear mandate to review operating practices, introduce better risk management techniques, and get the banks ready for a re-privatisation.
While incentive-based pay in finance has a terrible reputation right now, the problems of recent years occurred largely because profit-linked bonuses worked to create a mis-alignment between the short-run incentives of bank executives and the long-run interests of shareholders. In the case of nationalised banks, incentivizing the new managers by allowing them a small share of the re-privatisation proceeds would align their interests with those of the taxpayer.
Third, while management changes are necessary, there is no need for the sudden change in management structures suggested by the Minister. Existing management can be kept on and told to keep operating the banks as normal while a review of operations takes place.