It has been a traumatic weekend for the Irish banking industry. On Saturday morning it was revealed that senior figures in AIB, including a former chief executive Mr Gerry Scanlan, were beneficiaries of Faldor, an offshore investment vehicle which involved a breach of tax law. By lunchtime another former AIB chief executive, Mr Tom Mulcahy, had resigned as chairman of Aer Lingus. He was one of five AIB executives who had "tax issues" unrelated to Faldor. The same afternoon the news broke that Mr Mike Soden, the Bank of Ireland chief executive, was resigning, due to inappropriate use of the internet.
It is thus perhaps stating the obvious to say that the banking sector is now facing into a period of considerable difficulty and uncertainty.
The weekend developments will damage both of our major banks - and thus the reputation of the financial sector. The AIB affair and Mr Soden's departure have been widely reported internationally. Customer confidence and trust have already been damaged and now international investor confidence is under threat. The banks and the Irish Financial Services Regulatory Authority (IFSRA) need to show that they can quickly get to grips with the situation or even more serious damage will be done, not only to our domestic institutions but also to the future of the International Financial Services Centre (IFSC).
Serious questions remain for AIB in relation to the Faldor situation. One former beneficiary, Mr Roy Douglas, says that he was invited by the bank to participate in the scheme. He also contends that it only became the subject of investigation within AIB after he made an inquiry to the bank's investment arm, as he regularised his financial affairs. If this is the case, it raises the most serious questions about how the bank was run in the early 1990s and about why its own regulatory policing had not picked up Faldor at an earlier date. There are other questions which AIB also needs to answer. What were the precise reasons for its €800,000 tax settlement with the Revenue Commissioners? And how did the "tax issues" applying to five other executives emerge in the Faldor investigation? As if the foreign exchange overcharging fiasco was not enough, the AIB board led by Mr Dermot Gleeson must now cope with the fall-out from the Faldor affair and the poor dealing practices at its investment arm in the early 1990s.
Meanwhile, Bank of Ireland must quickly move to appoint a new chief executive to head its operations following the extraordinary misjudgment shown by Mr Soden in accessing the internet.
IFSRA must lead the way in demonstrating that bank practices and regulation in the Republic meet the highest international standards. It is no easy task. It is increasingly evident that the previous regulatory regime did not operate in any meaningful way to police standards or the interests of consumers. The resulting damage has left the new regulator with a mammoth task.