Dáil debates

Thursday, 28 January 2016

Joint Committee of Inquiry into the Banking Crisis: Statements

 

2:55 pm

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein) | Oireachtas source

Guím gach rath ar an Teachta Rabbitte. I might not have agreed with him on everything in the last few years, but there is no doubt that he raised the level of oratory in this Chamber and brought much colour in his time. Gabhaim buíochas freisin le muintir an choiste baincéireachta mar gheall ar an méid oibre atá déanta acu le linn an imscrúdaithe. Obair uafásach deacair a bhí ann agus rinne siad a ndícheall mar gheall ar an obair sin.

There is no doubt that the report had certain limitations on the findings it could make, but it did not have the same limitations when it came to its recommendations. This is where I feel the report has its drawbacks. One of the key findings of the report was that “[b]ank failure, which required the intervention and support of the sovereign, was the responsibility of senior executive management and the boards of directors”. This is true; the bank boards had ultimate responsibility for their lending practices, yet they have spent the past seven years blaming everyone and everything around them, while at the same time getting the Irish people to pay for their mistakes. With this finding in mind, what does the report suggest as a possible solution? What we get is this: “All members of bank boards should have the requisite financial skills set and experience and should undergo ongoing compulsory Continuing Professional Development (CPD) appropriate to banking, to include risk and governance.” Are the authors of this report seriously suggesting that the solution to the structural problems in Irish banking at a board level are to be tackled with a training course? Is the report telling us the fundamental problems with Irish bank boards can be solved with a weekend in the country and a PowerPoint presentation? There is a serious paucity of vision here.

Let us be clear: this crisis was caused by a vicious circle of reckless property speculation by developers. This was facilitated by unsustainable lending by banks that were poorly policed by a financial regulator that was intentionally created with insufficient powers and resources by a political class that was itself beholden to those developers. The abandonment of prudential lending practices by banks’ senior executives was reinforced by board-level groupthink. This, in turn, fuelled a race-to-the-bottom mentality, which put pressure on others to match the unsustainable terms offered by competitors. The pursuit of reckless lending was justified by the requirement to maximise shareholder value, even though this was not in the long-term interest of the business. There was a change in culture of banking away from service to customers and towards meeting arbitrary sales targets. This culture change was reinforced by a shift from basic pay to performance-related pay and bonuses within salary structures. On what planet can these issues be resolved with a PowerPoint presentation and a certificate? Serious and practical measures need to be implemented. For example, boards need to act in the long-term interest of the bank rather than pursuing the short-term maximisation of shareholder interest. The regulator should consider governance structures. There is a need to expand representation on bank boards to people such as community representatives and employee representatives. This would reflect and recognise the broader and social role of financial institutions, not just the commercial role they are involved with at the moment.

The regulator should lead a major review into the culture of banking which would include consideration of how the structure of remuneration within the financial services sector affects its actions, especially the services delivered to customers. This review should involve employers and unions. They should recommend appropriate balance between basic pay and incentives. If the Government were serious about reforming the banking sector, it would legislate for banks to act in their own interests for the long-term objectives and also in the interests of the communities they are supposed to serve.

The report concludes that it was commercial property speculation that ultimately led to the failure of the Irish banking system. This activity, of course, was not only assigned to Ireland - Irish banks were funding British projects as well as ones here - and yet the sole recommendation in this report is that "A detailed and comprehensive commercial property price register should be introduced." Obviously, I welcome this, but how would such a register deal with the issue of Irish banks funding Irish developers for projects abroad? Approximately 40% of the value of the loans transferred to NAMA related to properties outside of the Twenty-six Counties. How would the register deal with any of that? Furthermore, a price register is not regulation. There is a fundamental need for clear and direct oversight of the property sector. It is incredible that an inquiry can find the commercial property sector directly responsible for the crisis and yet offer no recommendations whatsoever with regard to reform or regulation of that sector. Neither does it offer any ideas for reform or regulation of the oversight of lending in that sector. The authors of the report cannot blame the terms of reference for this. It is a true and sad reflection that in this world it is still seen to be necessary to tug the forelock to the bank.

Between 2008 and 2013, real political power in Irish society revealed itself in a way that had not been seen for decades. The scale and depth of the crisis made it impossible for the nature of the influence that existed in that nexus to remain below the radar. The crisis brought clarity to the focus of the State's economic and political system. What we saw in that period were the consequences of the empowerment of financial dealers and commercial property developers aided and abetted by mainstream political parties which were unable or unwilling to see an alternative to that process. The unprecedented use of credit sourced from global financial markets from the mid-1990s formed a fuel for that nexus of power and influence and that had a devastating consequence for everybody living in this State. At the same time, all the social and economic myths that were built up during that period that Ireland was a prosperous land and a classless society simply vanished before our eyes. Instead, business interests, concentrated mainly on financial administration and property speculation, used the full power of the State to protect themselves from their own decisions and strategies. Those individuals, who had sat for decades and reaped and creamed the profits of Irish society, literally looked around the room at each other and said, "Who is going to pay for this? It will not be us. It will be Irish society who will pay for it." The manifestation of that is that we pay €7.1 billion in interest on the debt of the State. The education budget amounts to €8 billion. That is a phenomenal amount of money. Considering the existing infrastructural deficits, the health deficits and the education and housing deficits in the State, the hangover of the decisions made by that nexus of power will affect this generation and the generations to come. It will mean a reduction in opportunity for these individuals as they go about their lives. In some cases, it will mean people losing their lives. In some cases, it will mean people not having proper housing in which to live. It will mean that people will not attain the academic or educational opportunities that would help them fulfil their potential in society. The nexus element of the report is a major weakness.

If one looks at the State today and sees what has happened with NAMA and the fact there are investigations in NAMA, the FBI is involved in an investigation in Britain and we have the fraud squad but, unfortunately, no investigation here - if any Member has any information, he or she can give it to the Committee of Public Accounts, PAC - and one sees IBRC, where there have been billions of euro of write-down landing in the pockets of individuals who have been major benefactors of Fine Gael, it is clear therefore that nexus power has not yet finished. Obviously, the democratic deficit within the State did not begin in 2008, but the crisis brought it into sharp focus. It is up to our generation to learn from that.

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