THE NEW Financial Regulator, Matthew Elderfield, has said he was not being “heavy-handed” in his action against Quinn Insurance, and would change his approach if the firm came up with more money to protect policyholders.
In his first appearance before an Oireachtas committee since his appointment in January, Mr Elderfield outlined plans for a more invasive and hands-on approach to regulating the banks.
Covering many topics, he warned the era of very low mortgage rates was ending. Higher rates were “unfortunate but inevitable”. Low rates were driven by “fundamentally flawed” business models, as banks chased “unsustainable profits through risky property and development lending, profits which effectively subsidised aggressive campaigns for mortgage market share”.
Mr Elderfield, who is head of financial regulation at the Central Bank, said there had been “serious and persistent breaches” of solvency rules at Quinn Insurance – rules on how much insurers must hold to protect policyholders. He felt the appointment of permanent administrators to take control of Quinn Insurance was the best option to ensure that 1.3 million policyholders were in “a safe and sound environment”.
“I have said all along in discussions with the company: ‘Show me the money and we will take a different approach’, but no one has been forthcoming,” he said. It is understood the regulator believes the insurer requires about €700 million, while the Quinn Group believes that up to €150 million would raise its solvency.
Mr Elderfield said the regulator plans to apply to put Quinn Insurance into permanent administration at a court hearing next Monday.
He was “very sympathetic” to the plight of 5,500 workers at the group, but he had to ensure policyholders were protected, he told the Oireachtas Joint Committee on Economic Regulatory Affairs.
The regulator said it was unlikely that financial institutions would need capital beyond the sums disclosed last month. The Government has said the five lenders involved in the National Asset Management Agency (Nama) would need up to €32 billion.
Mr Elderfield said it was impossible to rule out further injections, but that “pretty dire situations” were assessed under which they would not need more capital.
A rapid wind-up of State-owned Anglo Irish Bank would be “prohibitively expensive”, he said, adding that splitting it into a good bank and bad bank was the cheapest option and a “reasonable” way to proceed. A “small new bank” is likely to be carved out of Anglo, he said.
Mr Elderfield said there was “a very strong prospect” of Bank of Ireland keeping the Government’s stake significantly below the 50 per cent majority control level as the bank seeks to raise €2.7 billion. He would need to see how AIB’s plan to sell assets in a drive to raise €7.4 billion “pans out” before knowing whether the State must make up any shortfall, he said.
He said some banks asked for time to meet the regulator’s new capital rules by the end of this year, but felt “decisive action was needed to draw a line under the banking crisis” and “to avoid a long drawn-out process”.
International recognition had been favourable to the political willingness “to bite the bullet” and put “an outer bound” on the cost of the State’s banking problems. The regulator will “hang back” on legal actions against former bankers – at Anglo, for example – to allow gardaí investigate, he said.
He said the Government faces difficult choices on how to deal with homeowners in arrears. There was “no silver bullet” to solve the problem, as some buyers bought properties for investment and there was “a serious moral hazard question” to be asked before any scheme was put in place to help those in debt.
Most committee members welcomed Mr Elderfield’s tougher approach to regulation, with Seán Sherlock, Labour TD, describing him as “the sheriff of Dodge City”.
