Shane Ross (Dublin South, Independent)

It is appropriate that we frequently debate the role of the Central Bank, even though, unfortunately, it is presented to us in piecemeal form by a series of financial Bills giving it greater powers in limited areas. I say this because nobody is more responsible for the banking crisis than the former Financial Regulator and the Central Bank. Without their role in the financial crisis, in the lending and in the property frenzy, we would not be in the state we are in.

There was no regulation worth talking about in Ireland in the banking sector in the years leading up to the crisis in 2007. I wrote a book, The Bankers. I am not plugging it as it is out of print. The book opens with what was a telling scene, with Central Bank officials being wined and dined by the top bankers in Ireland. Several top officials in the Central Bank, including a departing chairman and a chief executive, were wined and dined by those whom they were supposed to be regulating. This was not an unusual event. The Irish Bankers Federation was hosting an unnecessary dinner for one of the central bankers and this sort of get-together was normal in Ireland at the time. Yet, those in the Central Bank were meant to be policing the banks.

The problem was that the bankers and the regulators were far too close. They were so close that the regulators completely took their eye off the ball, with the exception, if I may say, of the golf ball. Another little feature was that they, certainly AIB but also other banks, used to entertain the central bankers and the regulators to golf outings and the instructions to their members was to lose the matches because it was what they called "customers golf". That is an extraordinary, but true, story about the closeness of the bankers to the regulators in those days.

What worries me about this kind of legislation, which is excellent as far as it goes, is that it does not tackle the real problems in the Central Bank itself. It is not possible to impose good regulations on a bad culture. When I look at what has happened inside the Central Bank in terms of personnel and changes, I do not see any great cause for encouragement.

The previous Minister for Finance, the late Deputy Brian Lenihan who, in retrospect, will go down as a very great man, did make some improvements to the Central Bank and the Office of the Financial Regulator. He replaced the old guard, the old system of replacing automatically each Governor of the Central Bank with the Secretary General of the Department of Finance, a practice which was an appalling mistake because it meant that the culture passed from one to the other and there was no real difference or change. The changes introduced meant that the system whereby the regulator was appointed on a strange, but normally internal, basis was changed. Professor Honohan was brought in - an outsider - to take the place of the Governor and Mr. Elderfield was brought in to take the place of the regulator following the departure of their predecessors.

That was commendable but there is little sign of change elsewhere in the ranks of the Central Bank. The same names keep appearing. The same persons who were there throughout the bad years appear to be there and still in charge. As a result, the same culture appears to be still intact and there is plenty of anecdotal evidence for that.

Worse is the fact that the board of the Central Bank is still politically appointed. I do not want to name names. I do not know whether it is even in order to name names of board members; it is not necessary in any event. Certainly, the Central Bank, before the board was reformed, had names on it who were clearly identified with political doctrines and political parties. I do not know whether they were asleep on the wheel as a result because it was not required of them to do anything except collect their stipend of €15,000 plus a month and keep quiet. They certainly did not do a good job. The fact that they were politically appointed was not to their advantage and was not to the advantage of the State.

It depresses me somewhat that the new board of the Central Bank was politically appointed and certain people whom I have named elsewhere but will not name here were appointed. They have absolutely no obvious credentials for the job of being on the board of the Central Bank except that they had expertise in other areas which were utterly irrelevant in the current crisis. Little has changed, in my view, and little has changed in the culture of the Central Bank. I hope this will be addressed in a future Central Bank Bill but there is no sign of this happening. It is unfortunately in the nature of governments to retain that sort of power of patronage even in circumstances where it is quite obvious that this is a disadvantage. It would be immensely to the Government's advantage if it took the membership of the boards of such sensitive areas where they are meant to be utterly independent and contain expertise which is vital, out of the political arena. This Government has not yet had the opportunity, as far as I know, to make appointments to the board of the Central Bank. I plead with the Government when it does so to use a process which is at least at arm's length to a direct ministerial appointment.

The other area which should be addressed is that of appointments to the boards of banks. This matter is not addressed in this Bill but it is undoubtedly true that the Central Bank will have to have an input into these boards and eventually these too will be political appointments. I am sorry the senior Minister is not in the House but I ask what is the delay in filling the many vacancies which exist on the State-owned banks. Is this because of a need to save money or because people are not offering or available?

Everybody now knows that advertisements have been put in the newspapers with regard to membership of these boards. I recall that in the initial stages, approximately 480 applications were received from members of the public and these were filtered down in number. Officials from the Department of Finance interviewed the applicants and the names were to be submitted to the Ministers. For some reason, nothing has happened. This process began in the spring and none of these vacancies has been filled. It may be there is a lack of suitable people. My information from those who have applied and who have been refused is that there were plenty of suitable applicants and they have been turned away. I fear that the public application process, the advertising of these jobs in the newspapers which has been paraded as a kind of new broom, is not working properly or else that it will be ignored. The final say for these appointments lies with the Minister and he does not have to choose anybody from that public application process. The process is also flawed because it is quite obvious - I am not saying it happens - that if a devious politician or a devious Minister in whatever Department wanted to make an appointment of one of his friends or cronies as happened, certainly, under the previous Administration, he or she could easily advise that person to apply under the public application process. The name could then be chosen by the Minister as having come through that particular channel. I do not believe that the boards of banks should be picked in that manner but the record of the previous Government, long after the crisis broke, was absolutely deplorable. Certain people were appointed - I will not mention their names because I am feeling in a charitable mood but I have mentioned them elsewhere - who had quite obvious connections with political parties and had no expertise in banking. If this is going to continue, the culture of the banks will not change and what is more serious, the culture of the Central Bank will not change.

This Bill is a welcome measure but we need to tackle the disease and not just the symptoms. We must not merely paint a picture of reform when real reform has not happened. I welcome the attempt in the Bill to address the problem of whistleblowers. I have tabled a Private Members' Bill on whistleblowers to be heard in the near future. It is a sticking plaster approach to the financial services area whereas a comprehensive whistleblowers Bill is necessary in all sectors of the economy and in all companies and other areas. I ask where is the Government's comprehensive whistleblowers Bill which was promised initially for October. We were then told there might be a need for a referendum on the topic but I do not think that is true. I do not know whether the Government is rethinking its policy or whether there is a delay. I ask the Minister to reassure me. There is a widely held sceptical belief of strong resistance to a comprehensive whistleblowers Bill not just in the Department of Finance which is notably conservative about issues of this sort, but also in IBEC which is dominated by the banks. As the Minister will know, IBEC is kept alive by the oxygen of the funding given to it by the banking and the semi-State companies. Its biggest funders were, and may well still be to a certain degree, Bank of Ireland, AIB and a few semi-State companies. This is pretty bad company to be keeping but these were the people who were dictating the pace of IBEC policies. It would be very depressing if the Minister confirmed to me that IBEC had been lobbying against a comprehensive whistleblowers Bill because he was acting as a voice of the banks.

We have to be aware that despite the fact they appear to be on the back foot, the bankers are still as strong a lobby group as one will find in this country. In Europe the bankers are successfully resisting the haircuts being imposed by governments. The bankers have several means of lobbying the Government and effectively controlling it. One of these is the Irish Banking Federation which is immensely well connected politically and always has been. It is in close contact with the Department of Finance and always has been. It runs an extraordinarily effective public relations machine. The Institute of Bankers in Ireland is a lobbying group and IBEC is one of the key social partners, one of the big organisations traditionally with clout - not so much now - in this land. Such a grouping can directly lobby through the Irish Banking Federation and through IBEC which is probably the less powerful of the social partners, but still powerful. One must realise one is dealing with a very professional organisation with money and clout and a certain amount of control. I ask the Minister to bear that in mind when he is considering the whistleblowers Bill and whether it will be comprehensive rather than piecemeal legislation.

The briefing document we got on this Bill from the Oireachtas Library and Research Service, which is very helpful on legislation such as this, picked out the case of Eugene McErlean, who was a whistleblower in AIB around 2002. It was interesting in his case that he was not just a whistleblower on AIB. Having worked in AIB as the internal auditor, he blew the whistle on overcharging to the Central Bank. However, the Central Bank behaved in a way which - I am choosing my words carefully - did not give any credibility to McErlean's charges and obstructed them. Not very long afterwards, McErlean lost his job. He was threatening to blow the whistle on massive overcharging. A settlement was made with him and he was forced to sign the confidentiality clause. Pressures, which were irresistible within a bank of that sort, were brought on him to leave. The Central Bank sang schtum, silent, and co-operated with the wishes of AIB in the case.

That case eventually came to a climax when Eugene McErlean came before the Oireachtas Joint Committee on Economic and Regulatory Affairs and AIB was forced to make an apology to him. Eugene Sheehy, in what was a noble gesture for a man who is not universally respected for what he did - and rightly so - apologised to him and said what AIB did to him was wrong. It was totally wrong, because he was an honest man who was removed from his job for blowing the whistle on gross overcharging. The overcharging scandal hit the media later on and what McErlean had to say was found to be true in every detail. Perhaps the committee in question was the Oireachtas Joint Committee on Finance. I am not quite sure as I attended both committees at the time. In a similar meeting of the joint Oireachtas committee later, the new Financial Regulator, Matthew Elderfield, having reviewed the case, exonerated McErlean and regretted what had happened to him. The lesson of the McErlean case was not that AIB had wronged him - it had grievously wronged him and deprived him temporarily of a career - but that the Central Bank, the guardian of the State's and of consumers' interests and the ultimate invigilator and patroller of the banks, had co-operated in the demise of an honourable man.

What concerns me about this Bill is not what is in its detail, but that it does not go far enough. My concern is that the culture of closeness between the Central Bank and AIB, Bank of Ireland and the other banks still exists. What I would like to see is a root and branch Bill which reforms the Central Bank from top to bottom so that we are guaranteed not just that the rules will change, but that the culture will change forever. There is very little sign of it changing within the banks themselves.

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