Bertie Ahern, Ireland’s former prime minister, admitted on Wednesday that his decision in 2001 to create a new financial regulator was one of the main reasons for the collapse of the Irish banking sector .
Mr Ahern, who resigned in 2008 amid questions over his personal finances, said “if I had a chance again I wouldn’t do it”.
He recalled the move had been in response to a string of financial scandals, such as the overcharging of customers at Allied Irish Bank. He said the new regulator, separate from the central bank, had been preoccupied with consumer protection. But he admitted that after the re-organisation he “never had a meeting with the regulators – the regulators never came near me”.
As a result of this breakdown in communication he said he had no idea of the extent to which the banks had become dependent on the inter-bank market to fund their loan books.
“I did not know the banks were using the inter-bank [market], the wholesale money market, to the extent that they did, that they were taking that chance,” he told Irish radio.
His comments are set to inflame the debate about financial regulation as Brian Cowen, the prime minister, and Brian Lenihan, the finance minister, look to appoint a new regulator for prudential affairs. This is part of a further re-organisation in response to Ireland’s financial crisis, and will restore the central bank governor to an important role.
Ireland is creating a three-headed banking commission, comprising the governor and the regulators with prudential responsibility and consumer protection.
The original split in 2001 created the Irish Financial Services Regulatory Authority.
One official involved in setting up the IFSRA structure recalled that one weakness of the system before then was the central bank had no legal authority to obtain information from the revenue commissioners, the tax agency.
The idea behind IFSRA was to bring all the responsibilities under one roof, taking over the prudential tasks previously handled by the central bank, as well as consumer protection, which had until then been the responsibility of the department for enterprise, trade and employment.
But under the 2001 changes, the bank governor could issue binding guidelines to IFSRA when financial stability was at risk. Officials were on Wednesday unable to recall whether during the years of the boom the governor had ever used that power to curb the excesses of banks.
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