A DECISION not to pay €40 million in Allied Irish Banks bonuses has been presented as a victory for Minister for Finance Brian Lenihan. Not so. It was a triumph for public opinion. After months of political inaction, increasing public outrage drove the Minister to reopen the issue of bank bonuses and to demand a change in policy from AIB.
The reason for this change is contained in the Minister’s own letter to the board: “without a measure of public acceptance . . . no government could provide support for the banks on the scale needed”.
The AIB board was offered a legalistic fig-leaf to cover its blushes. If it paid the bonuses, Mr Lenihan huffed, further public funding would be withheld. For a Minister who spent the past two years promoting the notion that no Irish bank could be allowed to fail, it was an extraordinary assertion. And it carried no weight. What it did do, however, was offer the AIB board an avenue of escape from previous decisions. By introducing “public interest” as a prime consideration in the payment of bonuses, private contractual considerations were undermined.
Mr Lenihan promised legislative change. That followed revelations by the Central Bank that, in spite of his decision to ban the payment of bonuses in 2008, some financial institutions continued to pay signing-on and retention bonuses in 2009. The banks themselves referred to “deferred bonuses”, as if contractual awards might be paid at a future date. The Minister has insisted that further State funding will be conditional on the non-payment of any bonuses, no matter when they may have been earned.
That matter may arise following passage of the Credit Institutions Bill, the terms of which were published yesterday. It gives the Minister power to impose conditions in return for financial support. But of far greater consequence will be his ability to direct a reorganisation of the financial institutions that are in difficulty; to appoint special managers with dominant powers to such entities and to transfer assets and liabilities. Boards of directors will owe an overriding duty to the Minister on behalf of the State.
As far back as the Dirt inquiry, when the banks facilitated widespread tax evasion, an Oireachtas committee found the government and its agencies were too mindful of the concerns of financial institutions and too attentive to their pleas. That may be changing under the gimlet eyes of IMF and EU officials. The State’s financial bailout has been made conditional on banking reform and restructuring. This is the outcome.
The Credit Institutions Bill has been tightly drawn in order to exempt the financial services sector and to reassure various foreign interests. But its emergency provisions are due to lapse in 2012. Could the Irish banking system then return to its discredited ways, with bonuses and opaque pay deals? A culture of law-bending, greed and entitlement has not gone away. Nobody has been held accountable for the damage done to the State. Public anger is palpable. Structural, indeed moral, reforms are needed.