Professor Patrick Honohan:

Why is the process regarding mortgage arrears moving so slowly? This is a multifaceted issue. I do not think anybody in Ireland wanted to see mass evictions and repossessions resulting from this crisis. That would have been the quick way to do it and that is how they did it in America. They had many repossessions. We started with moratoriums on that in 2009 and so forth. We warned about doing anything rashly. Then we moved to engagement and so forth. I am glad we have not had that huge wave of repossessions and that there has been time for the economy to make this recovery, for property prices to bounce back from their nadir and for people to start getting jobs again. There is a definite plus there relative to a quick resolution, which would have been a harsh resolution. That would have been socially damaging.

The banks remained over-optimistic all along and are still over-optimistic regarding what they can recover. That speaks to what Deputy Fleming has been asking regarding write-back provisions. I am not an enthusiast of the banks' writing back provisions. I am no longer in charge of this, because the ECB will be looking at that, but our staff were very much involved in it. There will be a temptation for banks to write-back provisions on the basis of optimism that everything is going to be all right. That optimism has caused them to be slow to do anything because, for example, establishing a split mortgage would be a hassle and although the split would allow them to recover if things improved, they would not see the need to do that and would just leave the person on interest-only for a few months.

In addition, some of the work we did to provide massive amounts of very cheap liquidity to the banks took the pressure off. That is part of what the ECB was doing when it came to us in 2010 and 2011 telling us our banks needed to downsize and to deal with these loans. We said we would still provide them with liquidity, even though it would remove the incentive for them to deal with this quickly. It is quite easy for the banks to decide to just spin this along. The customer may not be paying any interest, but then the bank is not paying much interest either. That is another reason this has been slow: there has not been a tight budget constraint on the banks because we in the Central Bank have arranged that. However, that should not have removed their responsibility to deal with the situation.

There is a legal system. Some 50% or 60% of the cases are going into legal proceedings, which can be extremely drawn out. Deputy Rabbitte talked about construction being extremely drawn out. Our legal procedures are also very slow. That gives time for compromises, but it may give so much time that people do not bother making a deal in the hope that something will crop up.

The efficiency of the banks can always be improved, but it is much better than it was when we first looked at it, in 2011, thinking that they could not do this. We had a deeper crisis than most of the others, which is why we are still dealing with it. A certain amount of Irish society is reflected in how we have handled this. It does not leave us with a healthy banking system, but it has allowed us to avoid doing some damage at the expense of not fixing situations and leaving people with a huge debt burden. They do not know where it is going to go. How have we done on it? The committee is used to my coming here and saying we are not doing well enough. Superficially, our number of non-performing loans appears high, but people who know what we are doing and have scrutinised it are saying we have some good procedures in place now. It is not for me to say, but we look worse on the headline numbers than on our processes. It is an Irish solution to an Irish problem. Is that not what A. J. Chopra said when he did not realise what he was saying?