Donohoe threatens the banks but there’s no sign of a stick

The only thing that matched Minister for Finance Paschal Donohoe’s outrage at the behaviour of the banks in relation to tracker mortgages was his caution in implementing sanctions.

Donohoe certainly did not mince his words about their behaviour. His essential message was that unless the banks complied with the instructions of the Central Bank there would be consequences. There was a vague suggestion that there might be a Garda investigation at some stage. As of now, though, there are no penalties or punishments.

Donohoe said he would require reports on the Central Bank’s investigation into the scandal in mid-December and again by March.

At each point he will decide if the banks have been making sufficient progress in dealing with the redress and repayment schedule. If not he will consider a number of options to censure the banks.

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He might demand stricter reporting standards or increase the bank levy. He might employ “targeted activist actions as a shareholder in three of the banks ”. Or he might not.

Asked about this last threat at a press conference, Donohoe suggested he would not lift the cap on bankers’ pay and bonuses. That’s more of a threat to take away a carrot, rather than the application of a stick, isn’t it?

“The discussions that I’ve been having are not about carrots,” he insisted. But any potential use of the stick is very much in the future conditional tense.

Supine approach

In fairness to Donohoe, he has got the banks to do – or to promise – what he wants: quick repayment in most cases, redress, co-operation with the Central Bank.

But they have done it because of threats from Donohoe and the regulator, rather than action.

You’re on your last chance, the Minister is effectively telling the banks. If you don’t behave, you’re in trouble. The Minister is the father of small children. He should know that this approach has its limitations.

In recent days there has been much talk in Government about the opportunity to show that it will deal with the banks differently, that the sometimes supine approach of the political system to banks is at an end.

But the Minister has learned some of the realities of life in Merrion Street. Political power and influence over the banks is limited. Speak softly and carry a big stick, US president Teddy Roosevelt advised. Donohoe chose to speak loudly to the banks. They haven't seen his stick yet.