Banking Inquiry

Day two of public hearings in the Banking Inquiry

Dan Griffin Thu, Dec 18
 
LIVE: Banking Inquiry

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  • This event has now ended
  • 09:31

    The second public meeting of the banking inquiry is taking place today. Chairman Ciaran Lynch is now introducing Rob Wright to the committee.

  • 09:33

    Who?

    A former Canadian secretary general of finance whose report on the Department of Finance was submitted in 2010.

  • 09:37
    Yesterday, Finnish finance expert Peter Nyberg got the public hearings underway by saying the inquiry would yield little that we don't already know.
  • 09:41
    When you joined the EU essentially you lost your own independent monetary policy, says Wright.
  • 09:43

    He says, when compiling his report, he and his team looked at whether the department was aware of risks of overheating in the property sector and whether the department provided sufficient advice on the risk of pro-cyclical fiscal policy.

  • 09:44

    He says the  Department of Finance did advise of the risks but that advice wasn't necessarily taken by the Government.

     

  • 09:46

    Wright: Programmes for government in many cases completely overwhelmed the fiscal framework.

    Social partnership was dominated by the turn of the 00s by interests looking for a slice of Ireland's apparent prosperity.

  • 09:48

    Wright: We found serious deficiencies in the quality of financial advice. In some areas the advice existed to facilitate a soft landing but there was very little engagement with that advice...after five years there should have been strong advice given, especially as forgeign agencies were voicing concerns about the construction industry in Ireland.




  • 09:51
    Of course, everything Wright is saying today, is contained in his report from four years ago.
  • 09:54

    Now he's outlining the recommendations he providing to the Department of Finance, to wit:

    The Panel recommends that the Department sharpen its focus on core business and  then substantially strengthen its capacity to manage that core business.

    The Panel believes that the Sectoral Policy Division is a core function of the
    Department especially given the need to implement the economic recovery plan and the  requirement for medium-term economic planning.

    Working structures of the Department are less than optimal. We recommend  removing a level of management from line management responsibilities.

  • 09:56
    In the four years since his report was published, Wright says there's been a great deal of progress in Ireland: much stronger engagement with the European Union;progress with implementing our recommendations; very important step on repatriating economic sovereignty with the early withdrawal of the troika.
  • 10:04
  • 10:06
    Wright: When the property sector was overheating, revenues were flowing, the surpluses fueled more spending. Were the tax authorities aware of just how vulnerable the country was to that stream of revenue? They were.
  • 10:08
    Wright: Ireland's position in a broader economic union means the country won't have a strong central banker to regulate the economy.
  • 10:08
    Senator Sean Barrett to open questions.
  • 10:11

    He wants to know whether the Department of Finance's lack of trained staff contributed to Ireland's crash. He asks whether the high proportion of trained economists contributes to Canada's ability to stay above the crisis?

  • 10:12
    Yes it does, replies Wright. Again he says he was surprised at the lack of economists trained to masters level in the Department of Finance but adds that it appears the department has attempted to rectify this.  
  • 10:12
    "Important progress has been made," he says.
  • 10:15
    But he says there had been less progress on public service modernisation than there should in the department.
  • 10:17
    Again, on the issue of a lack of economists, Wright says the department would have had essentially no expertise to question regulatory decisions were it not for the NTMA.
  • 10:21
    Asked how Ireland could have avoided overheating its construction industry, Wright says: You could look at the framework that was inducing it...you could have moderated, which you have done now, the coverage for mortgage rates. you could have taken action on tax deductability for morgages. You could have intervened with the banks in terms of their eagerness to pursue it. It would have had to have been a part of a framework that the government was comfortable with.
  • 10:24
    There was very little written advice. You could get snippets here and there but you would have expected a consistent flow of advice, says Wright. He says he was told the Freedom of Information Act would put the department at risk if its staff's advice would be truly blunt to a minister.  Wright says advice to a minister has to be blunt. But if you are suggesting a different path than he has already stated in public it's very damaging to relationships.
  • 10:25
    He expresses some concern about FOI because, he says, you don't want anything to restrain secretary generals of the future from pushing the button when they have to push the button.
  • 10:26
    Wright says the Comptroller and Auditor General told him there was a systemic issue of written record in Government that he is concerned about.
  • 10:27
  • 10:30
    Wright is reiterating the need for more written advice: It's not enough to say I had a conversation with the minster of the day.
  • 10:30
    Lynch now asks whether there were more press officials in the department than economists. Wright says 39 masters level economists is not enough.
  • 10:33
    Asked about the relationship between the department staff and the minister, Wright says he was impressed by senior officials but that he had given recommendations to make the relationship more rigorous.
  • 10:38

    Wright: There's going to be an election now and if there is a programme of government coming out of this election one of the most important questions is do you have some fiscal parameters to guide the people of Ireland? If you have a menu of actions that people want and an unanticipated surplus should you spend that on what people want or should you pay down the debt? There's a very strong case that you should pay the debt.

  • 10:39
    "You're going to have to restrain the ambitions of the Irish people."
  • 10:45

    So far Wright has said the Department of Finance has made progress in increasing the level of economic expertise among its staff over the last four years.


    He said the FOI Act was cited by department staff for the dearth of written advice available when he was compiling his report into the department.


    He says after the next general election, the government should consider using any surplus money to pay down debt instead of providing goodies for voters.

  • 10:47
    Wright: "I think what's been accomplished in the last couple of years has been tremendous. To repatriate economic sovereignty is pretty big."
  • 10:48
  • 10:50
    Wright: Social partnership achieved a great deal for people but it was a huge problem. It led to massive, huge excess spending, it overwhelmed the fiscal framework of Government. It's something you all have to deal with. How do you restrain expectations?
  • 10:58
    Wright: In Canada we have an independent monetary policy. You do not have someone independent in Ireland to restrain the economy when it needs to be restrained.
  • 11:01
    Asked whether a "partnership of error" lead to Ireland's banking crash, Wright says there was a collective problem. The department should have done a better job in providing rigorous advice and done it in a better way. The department should have stepped up its advice as the years went on.
  • 11:02
    The inquiry has been suspended now for a 15 minute break.
  • 11:12
  • 11:20
    And we're back.
  • 11:22
    Senator Michael D'Arcy asks Wright whether he would have "pushed the red button" had he been in the department at the time.
  • 11:22
    "Yes," says Wright.
  • 11:24

    Lynch: What exactly do you mean by "press the button"?

    Wright: I think he means whether I would have provided strong advice.

  • 11:27
    The Department fo Finance was right to second staff from the NTMA, Wright says, adding that those people should stay with the department permanently as advisers.
  • 11:32
    Wright says he didn't see any evidence of people with different judgment or contrarian views within the department being persecuted for those views.
  • 11:32
    They keep mentioning the "red button" now.
  • 11:35
    Answering a question from Joe Higgins about having Pat McArdle on his review panel, Wright says I think Pat McArdle brought a great deal to the table. He had views about how the department and the economy evolved. I don't think at any time he represented a banking view to me or the panel.
  • 11:40
  • 11:45
    Asked about lobbying of the department by the banking and construction sectors by Joe Higgins, Wright says he didn't see evidence of the lobbying process that was underway. "Probably some pressures from this body [the Oireachtas] from people who weren't hearing what was happening for constituents."  Lobbying exists, he adds. It happens, but there really wasn't a well established written record of this.
  • 11:47
  • 11:55
    No, social partnership was used to leverage public sector pay in a way that was overdone, says Wright, in response to a question from Kieran O'Donnell asking whether his report scapegoated social partnership when the real problem was inadequacy in the Department of Finance.
  • 11:56
    The department was fit for purpose because it was working hard to improve itself, Wright says.
  • 11:59
    Over the period you covered, was the department fit for purpose, asks O'Donnell. He's asked that a number of times now. He must have used the term "fit for purpose" about 10 times in the past few minutes. "It's not a Canadian term," says Wright. But he still rejects the notion that the department was, indeed, not fit for purpose.
  • 12:08

    Question from Fianna Fáil finance spokesman Micheal McGrath: Did you encounter any evidence that the Government of the day was being challenged on a sustained basis by the Opposition?


    "No," says Wright. "And frankly I don't see it now."  Political debate will have to mature in that direction, he says.


    McGrath wants to know whether the government of the day were being sufficiently challenged by the opposition, whether the opposition were giving them viable alternatives.

  • 12:15
  • 12:19
  • 12:22
    Pearse Doherty raises warnings from Department of Finance official Marie Mackel of an impending financial crash. But Wright says he did not interview her for his report.
  • 12:28
    On some key elements there wasn't as active an engagement with the regulator as there should have been, says Wright. Again, on written advice and the lack of knowledge within the department, Wright says it's very difficult to put a piece of advice in writing if you don't know that it's correct.
  • 12:31
  • 12:35
    Asked whether he was surprised by the ECB decision not to attend the banking inquiry, Wright says, to laughter, "I didn't know that was an option". He started saying "I wouldn't expect the European Cent--" but pulled back and simply said he wouldn't comment on other parties.
  • 12:47
  • 12:49
    Final questions now.
  • 13:00
    Wright says a more modern approach is needed for hiring in the public service. At this stage, most of the points articulated earlier are being repeated: "You need to be fair and you need to be efficient"
  • 13:03
    In light of Nyberg yesterday saying the inquiry wouldn't yield much new information, Wright says: I think stocktaking is a good thing. What I would be advocating is you should be looking forward. "If it [the inquiry] is focused on the forward look, it is worthwhile."
  • 13:25
    And so ends an enthralling four hours in committee room 3. It'll be November 2015 before we know it. Thanks for reading, auf Wiedersehen.