THE FORMER chairman of Ulster Bank, Sir George Quigley, says banks were driven by “herd instinct” into reckless lending due to the highly competitive banking environment in which they operated over recent years.
Speaking ahead of a public lecture yesterday at the Royal Irish Academy (RIA) in Dublin, Sir George said that no financial institution could have “remained a wallflower” watching rival lenders “pirouetting around the dancefloor”.
He said that had banks reined in their lending and been more prudent, shareholders would have demanded higher profits that were being made by rival institutions.
He was answering a question about whether increased competition from two of the UK-based banks in Ireland – Royal Bank of Scotland and its subsidiaries Ulster Bank and First Active, and Halifax-Bank of Scotland (Ireland) – led to more aggressive lending.
Ulster Bank was the first lender to offer 100 per cent mortgages in the mainstream market, while Bank of Scotland (Ireland) introduced tracker rate mortgages.
Sir George was chairman of Ulster Bank from 1989 to 2001 and is currently chairman of Short Brothers. He is president of the ESRI in Dublin and the Northern Ireland Economic Council.
He was speaking at the RIA on the subject of “Ireland 2020”.
He told The Irish Times that the next decade in Ireland would be shaped “to a significant extent” by what happens outside Ireland due to the globalised nature of the economy.
Ireland was well placed to cope, he said, as it had “a very low debt overhang” and “a disproportionately large business base” due to the flow of foreign direct investment into the State.
Sir George said it was “early days” to gauge the precise effect on foreign investment into Ireland of the Obama administration’s plans to change tax rules for US companies operating overseas.
“It is vitally important that the favourable tax regime which Ireland has enjoyed and has been a big factor in attracting foreign direct investment is maintained.”
Sir George said the speed of the correction in the country’s public finances was the problem facing the Government and that it would take “several years” to rectify.
He described the banking crisis as “a financial pandemic” and said that “getting the right anti-viral drugs is very, very difficult”.
Sir George said the “Northern Rock model” – where banks relied on wholesale market funding to finance massive lending growth – was “simply flawed”.
“The whole thing became a house of cards.”
He said that light-touch regulation contributed to the problem. “There was no one out there blowing the whistle and shouting stop,” he said.
Most people forgot the economic boom would eventually end, he said, and that there was a “get-rich-quick mentality” worldwide.
“What is essentially necessary in the financial sector is to get back to the good old mantra – responsible lending to responsible borrowers,” he said.
