My UCD colleague Joe McGrath, writing here last week, called for the Central Bank to be given the power to hold senior bank executives personally accountable, by means of fines and suspensions, for wrongdoing that takes place under their watch.
A step in that direction would appear to be the Central Bank’s recent fining and suspension of the former chairman of Irish Nationwide (the now defunct building society that saddled the taxpayer with a bill in excess of €5 billion). Michael Walsh admitted “certain prescribed contraventions of financial services law” between 2004 and 2008.
But a letter-writer to the Irish Times, Dick O’Rafferty, noted that the fine of €20,000 imposed on Mr Walsh only “represents 10 per cent of the total in fees paid to him during just his last two years in that post”; and that the decision to bar him for three years from being a director of a financial institution hardly constitutes “merciless … punishment” either.
Historian Diarmaid Ferriter chronicles the long history of misbehaviour on the part of the Irish banking sector, with examples going back to the eighteenth century. He concludes that senior bank executives “have no moral compasses; some have been bailed out by the State and by extension us customers, yet still they abuse enormous power and accumulate vast profits at our expense”.
O’Rafferty’s emphasis on toothless regulation goes to the heart of these longstanding abuses.
The longest white-collar criminal trial in the history of the state saw two former directors of Anglo Irish Bank (whose collapse cost us even more than that of Irish Nationwide) spared jail in 2014 because the judge ruled that the financial regulator had given an effective green light to the illegal transactions they were proven to have carried out.
Absent a strict and efficient regulator, relying on anybody’s sense of morality to ensure they do the right thing is asking for trouble.
Yet appearing before an Oireachtas committee recently, Central Bank governor Philip Lane spoke of “behavioural and cultural issues and challenges” at the banks in relation to the tracker-mortgage scam. He had earlier expressed the hope that “moral suasion” might make the banks do the right thing.
This sounds suspiciously like excuses are being made for actions that should be attracting forceful censure, regardless of what the claimed institutional culture was or is. As Fintan O’Toole has written, “The only culture that really matters is the culture of impunity … [T]he only code that will make a difference is the criminal code.”
Of course Joe McGrath is correct that “changing culture and banking behaviours is crucial”, but I disagree that criminal sanctions “can play crucial roles in punishing and deterring wrongdoing, but sometimes they are merely a form of damage limitation after the fact”. At the risk of sounding clichéd, punitive criminal sanctions are the only language senior bankers might actually understand.
Interestingly, the moral relativism applied to bankers (it is their “culture” after all) goes missing in other areas of public policy. Leo Varadkar’s mendacious “welfare cheats cheat us all” campaign made no allowances for any “culture” of people claiming welfare payments they were not entitled to. Right and wrong were clearly defined and legal punishment – not moral suasion – was to apply without ambiguity.
Try a couple of mental experiments here. Would Leo Varadkar have run a campaign with the slogan “banking cheats cheat us all”? Would a senior state official have pointed to “cultural” issues when discussing welfare fraud or suggested that the problem be tackled by means of “moral suasion”?
Yes, the Minister for Finance may label bank behaviour “disgraceful”, but if these words were to carry real meaning then financial regulation would be unambiguous and severe, and those egregiously breaking the law, thereby causing enormous public expense and suffering, would be in jail – as happened to 29 such individuals in Iceland.
The time for half-measures, including fines and suspensions, is long since passed.