In 2011, the economist Morgan Kelly delivered the annual Hubert Butler lecture in Kilkenny under the title What Happened to Ireland? It dealt with the theme of “the meteoric trajectory of the Irish economy over the past 25 years from basket case to superstar and back to basket case”.
Understandably, Kelly had much to say about banks: “Looking at what happened between 2000 and 2008 we can see that, underlying the boom and subsequent bust in house prices and construction, lay a bubble in bank lending; and that the blame for what happened lies overwhelmingly with the senior management of banks who authorised this lending.” Kelly took issue with subsequent reports into the banking collapse because the finger of blame was not pointed directly enough – the “everyone is to blame which means no one is to blame” approach. As far as Kelly was concerned “it is ultimately the task of senior bank management – not regulators, not auditors, not ratings agencies – to ensure that their companies do not adopt suicidal strategies”.
It should have been launched on April 1st as it will have no regulatory powers and will change nothing
Where the balance of blame lies has been contested, and Kelly has his critics. Regulations governing the financial sector were obviously woefully inadequate; alongside that, the political impulses behind the governing of the financial sector, the relationship between politics and the construction sector, and EU monetary policies all need to form part of the analysis. But the fundamental point made by Kelly about bank management is true. Yet despite the “suicidal strategies”, the banks did not all die; most were rescued and resuscitated by a State commitment ensuring that private debt became public debt with devastating consequences.
In the years since, we have learned more about other invidious and damaging practices by the banks, including in relation to tracker mortgages. On April 15th this year, the Irish Banking Culture Board was formed (described as an “independent industry initiative” funded by the five retail banks) to aspire towards an “authentic, sustainable cultural change” within the banking sector and to “make banking in Ireland trustworthy again”. It should, of course, have been launched on April 1st as it will have no regulatory powers and will change nothing.
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Bank bashing
That assertion apparently amounts to bank bashing and we were hilariously warned this week by the retired MEP and new chief executive of Banking and Payments Federation Ireland, Brian Hayes, that “for the last number of years, bank bashing is the new form of groupthink in this country”. No, Mr Hayes, what you term bank bashing is about legitimate, justified criticisms of a banking management culture that was and is reprehensible, enabling not just the sins mentioned above but also a history of misconduct in facilitating tax evasion and what the Joint Committee on Finance and the Public Service identified in 2005 as numerous incidents of failure by banks to comply with “acceptable standards of behaviour” in relation to customer charges and interest rates, as well as excessive remuneration which prompted calamitous risk taking.
An industry voice? Just what is that?
Hayes has been furiously spinning and revising because in his previous career he was a critic of banks that in his words “fleeced” their customers. Now, it seems, Hayes understands that there is a reason why Irish mortgage variable rates are so high and he’s “happy to explain that to people”. In contrast to when he was a politician, he asserts, “the understanding of the mortgage market is a little bit more nuanced … my understanding is certainly better now”. But even worse drivel has emanated from this poacher turned gamekeeper: “The banks have to start speaking as an industry voice again. That’s why they came to me.”
An industry voice? Just what is that? Those warm, treacly ads about banks making our dreams come true and caring deeply? Or a chorus of deceit, evasion and entitlement along with a demand that the restrictions on obscene pay and bonuses be lessened or removed?
Cheerleader
Hayes does not, he says, “have the temperament to be taoiseach”, but he certainly has the gall to be a cheerleader for the banking elite and preach about the need for us to understand the nuances of customer fleecing. His will be a cosy, easy job, because the culture of Irish banking is not going to change one jot. There are many reasons for that (including some identified by Patrick Honohan in his recent book, Currency, Credit and Crisis: Central Banking in Ireland and Europe): the enduring culture of corporate entitlement; the limited capacity “to achieve decisive reforms of culture”; deferential regulators and lenient responses to abuses, not to mention a Central Bank that has been far too passive since its creation.
Hopefully, the annual Butler lectures will continue well into the future where important questions relating to the economy, financial services and management can be addressed by Morgan Kelly’s successors, including the inevitable one – Ireland: why were the lessons not learned?