Inside the world of business
New rules will aid banking system
THE CENTRAL Bank’s decision to force banks to recognise losses sooner rather than later may have its genesis in the 2008 credit crunch, but it will also have a significant bearing on the repair of the banking system.
The failure – under accounting rules – of the banks to recognise in their accounts the disaster looming in their loan books was one of the reasons Ireland fell into the trap of thinking it could guarantee its entire banking system. The same accounting inflexibility – losses only shown in the year they are crystalised – is now providing an incentive for banks to kick problem loans down the road and thus preserve scarce capital.
The downside to this short-sighted approach is that the process of resolving the banks’ loan books is dragged out and they will continue to act like zombies. The new guidelines will not solve the problem, but they are a step in the right direction.
Ruling on ombudsman has serious implications
THERE WAS an interesting judgment in the High Court last week that went unnoticed and that has major consequences for the Financial Services Ombudsman.
The ombudsman had found in favour of Bank of Scotland (Ireland) against two developers, John Lyons and Patrick Murray, in a dispute over debts of €17 million to buy land in Limerick, Tipperary and Clare from 1999 to 2008.
The two men appealed the ombudsman’s decision not to hold an oral hearing to decide factual issues between the parties.
Mr Justice Gerard Hogan found the ombudsman made a “serious error”, negating the men’s “constitutional right to fair procedures” by not holding the hearing.
The ombudsman, Bill Prasifka, doesn’t have to hold hearings, but the judge believes he must, if fairness is to prevail.
Counsel for Prasifka had argued that it “could not practically function” if it was expected to be a miniature version of the Commercial Court.
The judge recognised his decision would have “many inconvenient consequences including, perhaps, considerable resource implications at a time of austerity”.
This would suggest that it is not just the Central Bank that will have to staff itself up significantly.
HOLIDAYS
Cantillon will return in the first week of January
ONLINE
You can get the latest news each business day at irishtimes.com/business or by following us on Twitter at twitter.com/IrishTimesBiz. We also have a Facebook page at facebook.com/IrishTimesBiz where you can read the latest business headlines, blog posts and reader polls.
