Why have an inquiry?
1. The fiscal cost of the banking collapse is likely to be so substantial as to dwarf any similar event that has occurred since the foundation of the State. This is not e-voting machines, or the cost over-run on Luas, not that these were undeserving of investigation.
2. There has been a systemic collapse of the Irish banks – all of them. This is not a cock-up comparable to the DIRT/offshore accounts episode, or Mr. Rusnak, nor is it a failure of a rogue bank, or of small banks.
3. The absence of a public explanation from the authorities or from the banks themselves has fed public perceptions that fiscal austerity is being pursued in order to bail out the banks. There would be fiscal austerity right now even if the banks were tickety-boo, but the absence of a factual public narrative on the banking collapse is damaging the credibility of the fiscal adjustment programme. Most economists regard this programme as necessary and desirable, at least in broad terms. It will take another three or four years, and it needs public acceptance.
4. Bank boards and bankers remain in situ with limited exceptions. The lack of contrition, given what has happened, fuels public anger and could damage the willingness to honour debts.
5. International capital markets have drawn their own conclusions about the extent of the fiscal cost, about the credibility of Irish regulatory authorities and about the probity of Irish business. The absence of a full narrative runs the risk of less favourable assessments than are actually warranted.
Inquire into What?
6. Inquiries are under way, mainly concerning Anglo, into doctoring of accounts, loans to directors, share-support operations and other matters which may lead to criminal prosecutions. But several banks, including the two largest, appear to have lost most or all of their capital through mismanagement, without benefit of any criminal behaviour. An inquiry into boards and management is justified for the simple reason that these are banks, and have had to be rescued at taxpayer expense. The behaviour of auditors, and the efficacy of accounting standards, should also get a mention. A true and fair view would be that the Irish banks have made no profits at all for many years.
7. There have also been major failures of regulation and supervision. How did a building society , for example, end up with a loan book 80% of which is headed for NAMA? Balance-sheet expansion, loan concentration and excessive exposure to funding risk on the liability side were permitted to proceed unchecked year after year.
8. Any inquiry should focus on these (non-criminal) issues – bank management, the performance of the regulatory authorities, auditors. The criminal investigations will take care of themselves.
9. Regulatory and supervisory functions are delegated to the Central Bank and its offshoots. The DoF and former Finance Ministers ought not to be in the firing line, on the principle that if you hire a dog, you don’t have to bark yourself. The media, and the Dail opposition parties, sometimes muddy the waters by seeking to pin the tail to the wrong donkey. So far as I am aware, the CB had adequate powers at all times, and never sought additional powers only to be refused.
How to Organise an Inquiry?
10. As a result of the Abbeylara episode, there may need to be special legislation to facilitate a parliamentary inquiry. There would be no public support for a ten-year extravaganza overseen by m’learned friends. Deputy Pat Rabbitte has apparently prepared a bill to deal with the Abbeylara fall-out, and Judge Yvonne Murphy appears to have done a competent job, quickly and at low cost, on the Dublin Archdiocese.