Banking inquiry: More could have been done, says Patterson

The financial regulator at the time of the banking crisis was engaged in "principles-based regulation with not a lot of intrusion", former chairman of the Irish Financial Services Regulator Authority (Ifsra) Brian Patterson has said.

Mr Patterson told the banking inquiry there had been concerns within the boards of the regulator and the Central Bank about the degree of lending in the banks and that he had voiced such concerns.

He said the authority could have done more and “done it sooner”.

“We simply did not see the calamity that was coming down the tracks,” he said.

Asked by Senator John Paul Phelan (FG) whether he saw the role of the regulator as protecting the interests of Irish banks rather than regulating their activities, Mr Patterson replied that if "we had our time over" he believed the requirement for the authority to support and develop the banking industry should not have existed.

Mr Phelan asked whether he held the view that fundamentally, the regulator was the “first line of defence” from the taxpayers’ point of view in terms of dealing with banking supervision and banking failure.

Mr Patterson said he was not trying to evade responsibility, but that in his view the first line of defence was the bank itself and its management. There was a requirement that banks behave in a prudent and ethical way, he said.

Under questioning from committee chairman Ciarán Lynch (Lab), Mr Patterson said he had not been given goals by anyone but had set them for himself.

“The only person who could have set goals for me would have been the minister [for finance] and he didn’t do that,” he said.

Asked by Mr Lynch whether the authority had ever considered severe punitive action against the banks, Mr Patterson replied that there had been discussions about sanctions, but not about the “nuclear option” of, for example, revoking a bank’s licence.

“In one particular bank which I can’t name, there were sanctions applied to them,” he said.

There had been discussions about banks’ capital requirements which was a “form of sanction”.

Responding to questions from Senator Marc MacSharry (FF) on whether he had ever felt information was kept from him for fear he might do something that would “spook the horses”, Mr Patterson said he had not at the time.

He said he accepted evidence by the former assistant director general of the Central Bank, Tom O’Connell, to the committee earlier this week in which he suggested he had been prevented from bringing something before the board.

“If Tom O’Connell said he was prevented from bringing something before the board, then I accept that must have happened.”

He was, however, surprised at Mr O’Connell’s contention that the board had been full of property and political interests.

Senator Seán D Barrett (Ind) noted Mr Patterson’s reference to a PricewaterhouseCoopers report in 2007 that the banks were healthy in 2007 and asked whether accountants had been measuring different things then than would now be measured in order to determine whether a bank would survive.

“I guess they were,” replied Mr Patterson. He said that with the benefit of hindsight it “almost beggars belief” that the such a report could be produced, based on what was now known.

Responding to Fianna Fáil finance spokesman Michael McGrath on whether he was revising points in his statement about his "constrained powers", Mr Patterson said it was only after he had written his statement four weeks ago "that I had to face up to the fact that there were powers there that could have been used".

Mr Patterson said he recalled a board discussion about the annual financial stability report, probably in about 2006 or 2007. There were voices at the table saying that certain things could not be said in the report for fear it would bring about “the very thing we are trying to avoid”, which was a run on the banks.

Asked by Mr McGrath whether it would have been better not to publish a report at all than one which did not reflect the concerns of board members, Mr Patterson said he agreed.

But if the authority had said it was not going to publish a financial stability report at all, “that in itself would have set off alarm bells”.

Mr Patterson said the report didn’t reflect the concerns of “all” board members.

He was not saying the concerns were shared unanimously among board members across the Central Bank and Ifsra because they weren’t. “But there were concerns.”

Mr Patterson told Socialist TD Joe Higgins that certain enforcement options available to the regulator, such as “moral suasion” and imposing capital requirements “didn’t work because the banks weren’t listening”.

He also said there had been “significant problems” in the Central Bank’s IT department and the net result of that was that its responsiveness to Ifsra, and in particular to banking supervision, was “inadequate”.

Mr Patterson also recalled a function hosted for him by the Irish Banking Federation in November 2008, some months after he had retired as chairman of Ifsra.

He said it had been a small function and a “very sober occasion” as he had been undergoing chemotherapy at the time.

Mr Patterson said he had never accepted private hospitality from any of the financial service providers during his time as chairman.

This event had been after he retired and at the time, he felt comfortable with it. Under questioning from Kieran O’Donnell TD, who asked was it appropriate for him to attend a function where all the bankers present on the night of the 2008 bank guarantee were present, Mr Patterson replied that looking back on it he regretted it had happened.