Professor Patrick Honohan:

Yes, it could.

Turning the clock back ten years or so, the legal opinion in the Central Bank would have been that this was mainly used for the purpose of liquidity ratios and it was not ever used in a precautionary way for the balance sheet risks on the loan side. It is clear, however, that the power was there.

The members, as legislators, are aware that when one introduces new and very specific powers, it very often weakens the old, general powers because some bank might challenge them by saying, "You are imposing this power under the 1971 Act but I cannot see why you are doing that because clearly the legislator has decided that there are some specific powers". However, the advice is that those powers were there and could have been used.

The other provision gives the Governor, having regard to his European responsibilities in the European System of Central Banks or the board of the bank in relation to its objectives, particularly financial stability objectives, the power to issue guidelines to the Financial Regulator as to the principles and policies that it was required to implement in performing functions. That is a different type of action. I think that would have been the first course of action. If the Governor felt he wanted to intervene and change the way the Financial Regulator was doing things, he would have probably used that guidance power, which would amount to a significant interference with the functioning of the Financial Regulator, before using the first power that I mentioned.

I am saying this very much ex post. People at the time never imagined the Governor doing these sorts of things, although it is mentioned in an analysis by the ECB, which was required to opine on central bank legislation. The analysis highlighted the importance of this power but I believe it was thinking primarily of the power in connection with the European functions of the Governor and not in relation to concentration ratios or whatever.