BUSINESS OPINION:It is two years since the bank guarantee was introduced, but has the banking culture changed, asks JOHN COLLINS

THIS YEAR promises significant changes in the Irish banking sector.

Minister for Finance Brian Lenihan has been quick to yield the sweeping powers granted to him under the Credit Institutions (Stabilisation) Bill, including the power to take action in the courts in private. The haste with which AIB was ultimately nationalised early on the morning of December 23rd contrasted sharply with the pace which banking problems have been tackled since September 2008.

It now seems that there is a plan in place to potentially fix the Irish banking sector but the devil will be in the detail as that plan is worked out over the course of 2011. With the blessing of the troika of the Internationally Monetary Fund, European Commission and European Central Bank, the Irish banking sector will be slimmed down to a scale suitable for an economy that itself has undergone rapid contraction.

The corpses of Anglo Irish Bank and Irish Nationwide will be merged and run down and their deposits moved elsewhere. The EBS will be sold off – possibly merged with Permanent TSB. Bank of Ireland and the nationalised AIB will become domestic operations after shedding their overseas subsidiaries.

So much for the institutions. Well over two years after the introduction of the bank guarantee, has the culture of Irish banking changed?

Any business studies student will tell you that the culture of an organisation is formed and moulded by those at the top. In a response to a parliamentary question last month, Lenihan confirmed to Labour’s finance spokeswoman Joan Burton that 38 per cent of the directors at institutions covered by the bank guarantee were in office on that fateful night at the end of September 2008.

Nine of the 14 members of Bank of Ireland’s “court” have held office since before September 2008.

This may be our “least worst” bank when it came to reckless lending during the boom and the subsequent need for a capital injection from the State.

However, despite the injection of €3.5 billion in taxpayer money, just days before Christmas the bank was being sharply criticised for introducing current account charges for more customers.

A third of AIB’s nine-member board served pre-guarantee.

At Irish Life Permanent, six of the 12 directors were in place at the time of the guarantee, including outgoing chairwoman Gillian Bowler, while at EBS, eight of the 12 directors retained their positions post-guarantee.

In his response to Bruton, Lenihan claimed that “contrary to public perception, a lot of changes at director level at the covered institutions have taken place”. Many of the changes though do not suggest the radical shake-up required of a banking sector which could ultimately cost more than €50 billion.

Take AIB as an example. The nationalised bank is now effectively being run by PricewaterhouseCoopers. The consultants were taken on by the Government to advise it on the banks and were also hired by the National Treasury Management Agency to assist AIB management in the wake of the departure of its chief executive Colm Doherty and chairman Dan O’Connor.

In the interim, David Hodgkinson, a 39-year veteran of HSBC but also a member of PwC’s advisory board, was appointed executive chairman.

Despite the central role PwC has played in advising the Government, under the terms of the ECB-IMF workout of the banks, firms that have previously worked on the Irish banks will be excluded from involvement in the more stringent liquidity and capital tests which it is hoped will restore market confidence.

Irish banking culture has been one of entitlement and privilege. It is a culture that makes AIB management feel entitled to pay bonuses to staff for performance in a year – 2008 – when the bank was forced to turn to the State simply to keep the show on the road.

It is a culture that saw the bank tell this newspaper in January 2009, when it was confronted about the imminent payment of bonuses, that “where performance has met the qualifying criteria, bonus payments will be made”.

Later the same day, the bank said payment was being deferred – no doubt after considering the public relations disaster of pressing ahead.

Bankers were deferred to and trusted in Celtic Tiger Ireland – particularly so by government ministers and regulators.

In society as a whole, there were few voices questioning how peripheral banks on the fringes of Europe could be making €1 billion a year in profits.

We have a plan with the potential to get the banks on the road to recovery.

Without a change in banking culture, though, the same institutions could well be looking for taxpayer support in another 20 years, when the next financial crisis hits.