THE NEW head of financial regulation, Matthew Elderfield, said he planned to address serious corporate governance failures at the financial institutions by limiting the number of directorships that bank board members can hold.
Mr Elderfield said he planned to publish proposals shortly that will “set more exacting standards” for the boards of banks and insurers.
“Recent history shows that many boards need to raise their game. The new proposals will set a clearer standard for their performance,” he told the Oireachtas Joint Committee on Economic Regulatory Affairs. The proposals include rules on board composition.
The regulator would try to adopt a stronger “gatekeeper role” by interviewing candidates for top bank jobs and questioning their competence in interviews, he said.
The regulator planned to seek new powers. “We need powers to be able to ban people,” he said.
There needed to be a resolution process put in place to deal with future bank failures, he said. This would address the difficult issue of whether creditors such as bondholders and senior debt holders should bear some losses, he added.
This was “on the list of things to be done”, but he was not sure it would be “practicable” to introduce this before the blanket bank guarantee ends in September.
The UK government had rushed through legislation in this area – following the collapse of Northern Rock – that was “the size of a telephone directory” and “probably” had some teething problems.
Mr Elderfield said he remained “open to dialogue” to address the solvency deficit at Quinn Insurance. Two other insurers had recently breached the 150 per cent solvency rule on how much firms must hold in reserve to protect policyholders, he said, and they increased reserves “within days”.
Another two insurers breached solvency rules by a greater amount and were placed in administration.
Mr Elderfield said this showed the regulator’s approach at Quinn was “completely consistent”.
Senator Diarmuid Wilson, for Cavan-Monaghan, criticised Mr Elderfield’s actions, saying he had been “heavy-handed” and “acted with haste” against Quinn. Mr Elderfield rejected this, saying Quinn had persistently broken “long-standing” solvency rules.
The lack of resources at his office was one of his biggest surprises, he said. He found two supervisors were monitoring two big banks, for example, and that staffing levels were “miles off” what they should be.
The regulator had approval to increase staff levels by 150 to reach a headcount of 532 this year, but may need a further 200 staff.
Mr Elderfield said he wanted to recruit more staff with “front-office” experience, and that he was establishing an investigative team “pretty much from scratch”.
Mr Elderfield said he found it “quite disturbing” that banks had developed such large exposures to property, and there had been “a disappointing track record on overcharging”. He said he had set up a weekly risk committee so that any problems would be reported up.
Answering concerns raised by the European Central Bank, he said he felt fully independent. “I have not had any direction from the Government,” he said.
The National Asset Management Agency (Nama) had cut further the price it would pay for risky loans to ensure there was “no second act”. “Our stress test requirement is tougher than the US and UK, because we know that the economic situation in Ireland is pretty difficult. It’s prudent to look at the half-empty glass.”
Mr Elderfield said it was impossible to say in hindsight whether the banks would not have required recapitalisation had proper regulatory standards been followed.
The tidal wave that followed the collapse of US bank Lehman Brothers would still have caused damage, but the damage wouldn’t have been as great, he said.
