David Norris (Independent)

I welcome the Minister of State, Deputy Áine Brady. As she may know, although my principal interest is in human rights, I contribute in a positive and constructive manner from time to time to the debate on economics. My positive attitude, however, does not mean that I am loath to be critical of either individuals or systems, as will be seen from a very significant case I raised last year concerning financial irregularities and the subsequent widespread cover-up. The Adjournment matter I raised at that time achieved its aim by generating significant publicity and helping to re-open an inquiry, although the matter is not yet concluded.

On this occasion I was approached by a senior financial executive from one of the European banks with its Irish headquarters in the Irish Financial Services Centre. This man, a senior risk manager at the bank whose repeated warnings that liquidity had fallen disastrously short of the required levels went virtually unheeded, was eventually obliged to resign his position in order not to incriminate himself.

I had several further meetings with this man, whom I designate "Whistleblower", including one where he was accompanied by a senior financial figure from another Irish institution who fully corroborated his story. I formed a view that Whistleblower was a man of integrity and courage. He showed me a communication from the offending bank which stated that his allegations were false and defamatory and threatened legal action on foot of a particular letter dated 8 April 2008 addressed to senior management. It is open to the Minister to examine this matter, including the role or, indeed, significant failure of the Financial Regulator in this case as well as seeking discovery of all relevant documentation. This is what I now demand that he do in the interests of restoring the reputation of our banking system and meting out justice for Whistleblower, who behaved honourably, and to the banking institution, which has not.

Liquidity and the perception of a positive liquidity position is essential for the life blood of banking to flow. The crucial matter is whether the asset and liability side of a firm's balance sheet can be realised and to what degree its assets would cover debts or obligations in the case of the dissolution or liquidation of the company. There are regulations proposed by central authorities that the ratio between liquid assets and liability would not be allowed to fall below certain guidelines. It is a requirement in the eventuality that this happens that the Financial Regulator should be informed immediately. These regulations were introduced by the Financial Regulator following the accord of the Bank of International Settlements in Basel 2007 under which the liquidity ratio below which banks should not fall was 90% of liabilities. This is monitored daily.

Whistleblower, following a career in banking in German banks in Ireland, joined the named bank in mid-May 2007 just some months before the liquidity regulations came into force on 1 July 2007. He was quickly established as risk manager for the company and, therefore, was among those responsible for reporting any such breaches. Consequently, when or if the bank failed to meet its obligations, he would be among those who risked severe penalties.

From the commencement of the operation of the regulations in July 2007 until Whistleblower's resignation in mid-September of the same year, several daily liquidity reports showed the bank to be well beneath the 90% threshold. Each time he expressed concern, he was convinced by the bank's treasury manager, his own assistants and the bank's chief executive officer that these liquidity breaches were only technical and were related to information technology difficulties of which he was not fully cognisant. In other words, he was assured from the very top of the bank that these were not real breaches, merely technical glitches in the computing system, and he was instructed by the chief executive officer that they should not be reported to the Financial Regulator.

There had already been tension between the treasury team at the bank and the risk manager, that is, Whistleblower. He had a precise and ordered view of the way the regulations should be applied and on several occasions reprimanded staff for leaving work, such as the documentation of a multi-million euro transaction, incomplete.

Whistleblower contacted The Irish Times and spoke to a reporter in the financial area. The reporter indicated that he was aware of the situation in the bank on foot of an anonymous e-mail from some other source. The e-mail apparently stated that the bank in question was in a state of chaos and that the auditors were threatening to withdraw their services.

Despite the fact that what Whistleblower described as high pressure tactics were used at the bank to inhibit him from reporting breaches on the grounds that they were merely technical, on one occasion in late July or early August 2007, a breach actually was reported. On this occasion, a letter was prepared which notified the Financial Regulator that the bank's liquidity ratio stood at only 70% but promised to remedy the situation immediately. This is a very serious matter as the margin of appreciation allowed under the regulations is a mere 1%. This represented 20 times the allowable margin. The letter was hand delivered to the Financial Regulator by Whistleblower who received a receipt which is now in the possession of the bank. Thus is established a clear and unbroken chain of evidence implicating not only the bank but also the Financial Regulator.

So worried was Whistleblower that he contacted a well-known firm of financial software consultants in London to seek their help in rectifying the situation. This company, whose name I shall supply to the Minister of State, agreed and Whistleblower facilitated their on-line connection to the system in Dublin. Within a day or two of this connection being made, an expert from the company telephoned from London to say that their calculations showed that the relevant liquidity ratio was only 50%, another staggering 20% lower than the already dangerous and impermissible 20%. He intensified his attempts to resolve the situation at the bank but met with such resistance that on 13 September 2007, he signified his intention to resign by e-mail as follows:

Dear [...]

In view of yesterday's discussions in your office which have once again highlighted the fact that the integrity of the information provided to me as a Manager is doubtful, it has become apparent that I am not in a position to fulfil my contractual obligations as Risk Manager at [X] Bank.

Therefore I regretfully wish to advise you that I am resigning from my position at this bank. Obviously I shall not be signing any report or document with immediate effect.

Under the terms of his severance, he remained technically an employee of the bank for the next month while his notice was worked out, although he did not attend the workplace. The bank attempted to persuade him to withdraw his resignation but he refused. Informants within the bank told him that on receipt of his resignation, all hell broke loose and eventually the Financial Regulator took over the entire bank for approximately two weeks. One of the figures involved at the London end of the consultancy firm told him that shortly after the Financial Regulator's staff arrived at the bank, the link between the consultancy and the Dublin bank was disconnected on the Dublin side and all communications between the bank and external consultants ceased. This suggests panic on the part of the Financial Regulator and the bank. This was not entirely surprising given that the Financial Regulator was already under negative pressure from its German regulatory counterpart, BaFin, because of the near collapse of Sachsen Landers Bank triggered by irregularities in its Dublin subsidiary.

It is astonishing that my informant, who was the initial whistleblower, was not on any occasion interviewed by the Financial Regulator nor was any attempt whatever made to contact him despite the fact that he was still technically an employee of the bank. Nevertheless, it is a legal requirement that all documentation of this kind must be kept and available for review at the bank. On top of this, records in the possession of the Financial Regulator should also document the bank's failure to satisfy the liquidity regulations. One would not have to be Albert Einstein to detect, by comparing the balance sheet figures reported to the Financial Regulator by the bank with the liquidity ratios that were also reported, that an entire section of the bank's balance sheet was not accounted for in the liquidity calculations. This may well have something to do with the lamentable situation encountered in other major Irish banks where dubious interbank loans are covertly arranged - something known as repo and reverse transactions. It seems obvious that there is a prima facie case that the bank behaved grossly irresponsibly and in breach of the law and that the Financial Regulator completely failed to engage in prudential supervision and exercise control of the bank's activities as required in the State. I have presented a cast-iron case to the Minister to investigate this serious matter further.