IRISH BANKS did not change their lending behaviour despite regular warnings from the Central Bank about excessive property lending, the bank’s governor has told an Oireachtas committee.
John Hurley said regular reports on the stability of the Irish financial sector were “not as effective as they might have been, as they did not lead to a sufficient or timely change in behaviour”.
Speaking at the Oireachtas Committee on Economic Regulatory Affairs yesterday, Mr Hurley said the Central Bank had warned that the property sector could not sustain between 70,000 and 90,000 new houses every year when the “natural demand” was for 50,000.
He said the Central Bank could issue warnings but had no powers to limit excessive lending and the rapid growth of indebtedness. He said these powers rested with the Financial Regulator and the Government. He also said the Central Bank had continuously warned that the economy was vulnerable to “a very serious international shock”.
Mr Hurley revised the Central Bank’s economic forecast downwards, saying the economy would shrink by more than 6 per cent this year – 2 percentage points more than its previous forecast just over a month ago – with the possibility of a more negative prediction.
Mr Hurley expected the economy to shrink by “at least 10 per cent” from 2008 to 2010, and after that he would “expect to see some improvement”. He also said he expected unemployment to average 11 per cent this year.
The State was facing a difficult year in 2009, he said, and the current crisis was the most serious he had seen in his 45 years of public service.
He was paid an annual salary of €348,000, according to the Central Bank’s most recent published figures, but he received more last year in line with pay increases in the public sector. He said he had been asked to stay for “a period of some months” through the crisis. “I don’t intend to stay on for too long,” he added.
Mr Hurley, a member of the governing council of the European Central Bank (ECB), declined to comment on any future movements in interest rates by the ECB. He said he supported the examination of “quantitative easing” measures, including printing money and buying assets, to stimulate the euro-zone economy.
Mr Hurley said the Government was considering adapting the €440 billion State bank guarantee “to facilitate longer-term bond issuance”, which would enable the covered institutions to raise funding maturing beyond the end of the two-year guarantee. He said there was recognition that financial regulation needed “broad-ranging review and reform”.
