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Economy view: so what's the view from Dublin?

By Brendan Keenan

Published 10/11/2015

Brendan Keenan
Brendan Keenan

An Ancient Greek dramatist could have made something of the Irish banking tragedy. The banking system failed partly - perhaps largely - because its regulators were obsessed with protecting it. (Enter chorus).

You do not have to go back quite that far to remember the epic struggle over whether to hive bank regulation off from the Central Bank.

One old salt said he had never seen such a battle in the corridors of power. Former Bank Governor and Finance Secretary-General Maurice O'Connell is credited with achieving the umbrella link between the two bodies.

It is easy to forget what the row was about. It was caused by a belief that the Central Bank was looking after the banks, at the expense of their customers. Not that separating them completely would necessarily have averted disaster.

In a credit bubble, the existence of two such bodies might even make things worse. How exactly does one look after customers when property prices are soaring and banks are willing to lend whatever it takes for customers to chase those prices?

Only Prof Hindsight would say that the best way to protect the customers was to stop them doing what they wanted - taking out big mortgages to buy expensive houses. At the time, it was obvious from the start that the Financial Regulator was really part of the central bank and it became obvious very soon that Patrick Neary took the same view about protecting customers - protect the banks first. The best protection for the customer, he would intone, was a healthy banking system.

Hence the need for the services of a Greek tragedian. Their version of how to protect banks led to the destruction of those banks. And it is true that, as customers took their money out of Irish banks from 2009 onwards, the last thing on their minds was whether they had been overcharged.

Belfast Telegraph

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