Banking Inquiry told supervision will not stop cyber-crime

The current supervisory regime for financial institutions is robust enough to prevent another banking crisis, but it might not be able to defend the sector against cyber-crime, the Central Bank of Ireland's deputy governor, Cyril Roux, has warned the Oireachtas banking inquiry.

“I think it [the supervisory regime] is well designed to monitor and react accordingly to the same crisis [as blew up in Ireland in late 2008],” he said. “Whether we are well equipped against cyber-risk . . . I cannot give you full assurance. I do not know [but] we do our best. We challenge ourselves, we try to recruit IT specialists.”

Mr Roux said cyber-crime and interest rate rises were the biggest risks facing the banking sector here.

“If interest rates go up by 3 per cent or 4 per cent, what is going to happen to households, to mortgage holders, to the firms?” he asked.

“This is maybe the main risk, because the experience is that when interest rates rise, they rise very quickly and very much. Another risk is cyber risk. We are quite concerned.

“All banks experience, every day, attacks on their system. One day they will go through, and they are determined attempts to take down the European payment system or settlement system or banking system.”

Frail system

Mr Roux described the Irish banking system currently as “quite frail”, and hinted that recent political pressure to reduce variable mortgage rates could impact on profitability.

“All the banks, or most of the banks, are under restructuring plans,” he said. “They have very large non-performing exposures.

“They have weak profitability and I have to say, as you were talking about political influence, that political pressure is, you know, built on them to reduce yet further their profitability and that’s something that . . . worries the ECB [European Central Bank] because, if they’re not profitable, then they will veer away from their restructuring plans and that will spell a lot of trouble for these banks.”

When asked whether the banking supervision division within the Central Bank was now properly resourced, Mr Roux told Fianna Fáil’s Michael McGrath that there is a 10 per cent vacancy rate in its banking supervision unit with 124 of the 140 positions currently filled.

He noted that in France staff could stay for between 15 and 25 years, but in Ireland staff are “coming and going”.

He said four to six staff now regulate each of Ireland's "significant" financial institutions: AIB, Bank of Ireland, Permanent TSB and Ulster Bank.

The committee has previously heard from other witnesses that just three staff would regulate two banks in the years before the financial crash in late 2008.

Earlier, Mary O'Dea, who was acting chief executive of the Financial Regulator for 12 months from January 2009, told of how she met the full board of Anglo Irish Bank to relate her concerns at a lack of co-operation by the then nationalised institution over certain issues being investigated by the regulator.

Defensive response

Ms O’Dea said she also reported certain transactions relating to Anglo to An

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“Sending a full investigative team into Anglo elicited what I believed was a defensive response, and early in the investigation I required the full Anglo board to meet me in relation to my concern about the level of co-operation,” she said, adding that the bank’s co-operation “improved after that”.

Ms O’Dea said Anglo used stenographers during the inspections, something she had never encountered before.

“It slowed the process for us,” she said.

There were also claims of legal privilege in relation to certain documents, which “very much slowed the process”.