The financial crisis post-Lehman Brother had horrendous implications for individuals and families all across Europe. That was especially the case in Ireland when our economy collapsed with the devastation that caused for real people and communities. People paid a heavy price for reckless lending, incompetent supervision and a political system that fell asleep at the wheel.
One of the biggest casualties was centre ground politics, in Europe and in Ireland. The entire burden of saving, re-capitalising and ultimately re-engineering the new banking system fell on the shoulders of the centre ground. It is no surprise that the far-left and far-right have been on the rise all across Europe since 2008. It is a reflection of the brutality of the economic collapse and the understandable political turmoil that was produced. However, it is also a reflection of the breakdown in trust between people and those politicians and regulators who were entrusted to protect and safeguard the financial system.
In the future, the only currency that matters for financial institutions is trust. That is especially true for banks, especially when they remain the main intermediary for the vast bulk of financial transactions. They have to earn trust everyday. They have to inculcate trust as the main belief system in their internal and external dealings. In short, a massive cultural change is still required despite all of the legislation that has been passed in the EU and in Ireland since the onset of the financial crisis.
We need privately owned banks that are well run and well regulated. They are a crucial dynamic for businesses and individuals to invest in the future growth of our economy. Without private capital and the underwriting of risk, there is no investment and ultimately no progress in an advanced society. That is even more obvious for countries with high public debts such as our own. In Europe we over rely on banks for borrowing needs in a circumstance where half of all EU household assets are held in cash deposited in banks.
For people to believe that the banking system has changed, it will require more than just getting redress and compensation for those tracker mortgage holders who were defrauded. While the crucial action right now is obviously to compensate people, the more important question is to get an answer as to why this happened. I have not heard any explanation from the Irish banks that sufficiently answers this question. They have put up no defence for their actions. Until we get to the truth of what happened, the public will rightly come to the conclusion that it’s business as usual.
That’s the most depressing thing from this scandal – the perception that nothing has changed. When the truth is that at a European level, there has been massive change especially in the area of banking supervision and regulation.
We now have EU-wide banking union, which is as much about supervision as it is about resolving banks that get into difficulty without the taxpayer footing the bill. We have a raft of new requirements for banks that ensure they manage their risks properly. However, maybe in the rush to push this new banking legislation through, the consumer protection element was not prioritised.
I have recently asked the European Commission to consider an investigation into what has happened in Ireland. DG Competition has far-reaching powers to conduct an investigation if it believes from a competition perspective that the internal market has been violated by collusion. The fact that the banks acted in what seems a coordinated way points to the presence of a cartel. That, if proved, violates EU law as it undermines the possibility of new market players entering the Irish mortgage market. This could carry potentially massive fines and penalties for those banks concerned.
The remit of the Irish central bank is not a competition remit. It has to focus on consumer protection and regulation of players in the existing market. The European Commission, on the other hand, can investigate from a competition perspective.
However, there is also a role in my view for the European Central Bank given the fact that it now acts as a European Supervisor for biggest banks across the Eurozone system. In Ireland, we have four banks operating under the supervision of the ECB. The ongoing stress testing of these banks, the supervision of their balance sheets all fall under the remit of the ECB. Was the ECB told about this liability? Were potential investors in these banks under a due diligence requirement informed about the potential exposure from this scandal. These are important questions that I have asked the ECB to clarify. We need the EU to help us all get to the bottom of this.
Getting back to trust, there is a requirement on all authorities, European and Irish, to answer fundamental question that remain. Questions that will not go away. Questions that demand an answer from those who have defrauded consumers. This trust will not be regained unless the Irish banking system finally comes clean.