A GROUP of officials in the Department of Finance, the Central Bank and the Financial Regulator discussed the stability of Anglo Irish Bank and other financial institutions in the months prior to the bank guarantee scheme being put in place in September 2008.
Briefing material drawn up for the department’s secretary general shows that the positions of individual institutions were discussed. However, it states that the “full extent of the fragile position of the banks only became clear after the bank guarantee scheme was put in place”.
The officials were part of a group know as the “domestic standing group on financial stability” which had its first meeting in July 2007. The group was established on foot of measures agreed at EU level aimed at strengthening financial stability in states. Its role was to facilitate the speedy exchange of information regarding financial stability and to prepare contingency plans in the event of any major risks.
This group relied on a number of sources of information, including the Central Bank’s financial stability reports. Briefing material says that while these reports highlighted risks to the financial stability, these were “not seen as likely outcomes”.
The main conclusions of these reports were that the financial system would remain stable and that “imbalances evident in the lending and property market would be resolved gradually over time”. They assumed there would be a “relatively favourable global economic and financial environment”. The briefing material adds that this was the mainstream or consensus view over that period
The material indicates that officials only became aware of the full scale of the crisis following increased engagement with Irish banks following the bank guarantee scheme. Independent reports commissioned into the six main financial institutions contained the first detailed analysis of the likely loan impairment rates.
Records also detail who was present on the night of meetings on September 29th/30th, which led to the Government’s decision to introduce the bank guarantee.
It says the chairman and chief executives of the two main banks, AIB and Bank of Ireland, sought a meeting late on September 29th, 2008, to discuss serious concerns over the liquidity position of the Irish banking system. The Taoiseach, Minister for Finance, Attorney General, the governor of the Central Bank also attended.
In addition, a number of senior officials from the department, the Central Bank, the Financial Regulator and the National Treasury Management Agency were present to advise. Anglo Irish Bank was not represented.
The department says it cannot release records of these meetings under the Freedom of Information Act, which protects the confidentiality of records prepared for use at a government meeting.
In relation to the domestic standing group on financial stability, the material says it is important to recognise that each party had sole competence for its own statutory mandate.
“It was not the case that . . .the work of the group gave the department a role in relation to the financial stability work of the Central Bank or the prudential responsibilities of the Financial Regulator.”
The department, it says, was responsible for advising the Minister in relation to safeguarding the stability of the financial system; the Central Bank was responsible for contributing to the stability of the financial system; while the Financial Regulator was responsible for the maintenance of “proper and orderly functioning” of institutions.