Governor denies Central Bank was `soft' on retail banks

It was "preposterous" to suggest that the financial institutions were running the Central Bank, its governor, Mr Maurice O'Connell, insisted at the DIRT inquiry.

Defending the bank's role, he rejected assertions by Mr Sean Ardagh, TD for Dublin South Central, that the Central Bank was "soft" on the retail banks.

"Are you suggesting, deputy, that we didn't do our job? We're the prudential regulator," he said.

When the committee chairman, Mr Jim Mitchell TD, reminded him that he was in a parliamentary committee and that proper "decorum" was required, Mr O'Connell said the question had been asked as to whether the banks run the Central Bank. "I say that is preposterous and that's a fair answer," he said.

The governor of the Central Bank, who was assistant secretary of the Department of Finance from 1990 to 1994, also told the committee that in his view the Comptroller and Auditor General's report was inadequate.

He said that "missing from it is this constant interaction with the political authorities. That is totally missing from the report. This point was made yesterday and I have to say that, in that sense, the report is inadequate."

He was also asked about the breakdown by county of non-resident accounts.

Mr O'Connell said that counties like Kerry and Galway, which had a higher proportion of accounts compared to other "relatively affluent" areas, had a higher proportion of emigrants.

During questioning Mr Ardagh said that it appeared from all the evidence he had seen that a "soft" approach had been taken in every way to the banks and particularly to DIRT and non-resident accounts.

"I can assure you," said Mr O'Connell, "we take no soft approach with the banks. You ask the banks. We are regulators. We fulfil our duties to the letter always and I ask you to prove otherwise. That is an unfair allegation against the Central Bank."

He said that if the bank was allocated extra duties, "which we will welcome, we will fulfil those to the letter as well".

Mr Ardagh, referring to the Comptroller and Auditor General's report, pointed out that in the 59 branches of the banks in Kerry in November last year there was £209.4 million in non-resident accounts. Yet in Meath, a "fairly wealthy county" there was £33.8 million in non-resident accounts in 40 branches. In Galway, there was £206.8 million in those accounts while in Kildare, another relatively wealthy county, there was only £44.2 million.

He said that in Co Kerry, the towns of Tralee, Killarney, Listowel, Castleisland, Killorglin and Dingle, were all in the list of the highest proportion of national non-resident deposit amounts.

"You are naming counties where the proportion of emigrants would be rather higher than it would be in the more affluent part of the country," Mr O'Connell replied.

Mr Ardagh said the figures were very, very skewed. He said that if this information was available to the Central Bank it would have given an indication that there was a significant problem. He pointed out, however, that the value of non-resident accounts was at the time £3.27 billion and if even 30 per cent of it was considered "hot money" then a billion was hot money. "It is a huge amount of money that has been evaded in tax by those people who are using non-resident accounts as a hold for hot money. Do you accept that?" he asked.

"No," said Mr O'Connell.

He repeated that the Central Bank's role was prudential. He said it was a tax problem, "a problem that should have been tackled through the tax system".