Central Bank and Financial Services Authority of Ireland
Encyclopedia
The Central Bank of Ireland is the financial services regulator of Ireland
and historically the central bank
. The bank was the issuer of Irish pound
banknotes and coinage until the introduction of the euro currency, and now provides this service for the European Central Bank
.
The bank was founded in 1943 and since 1 January 1972 has been the banker of the Irish Government in accordance with the Central Bank Act 1971, which can be seen in legislative terms as completing the long transition from a currency board
to a fully functional central bank.
The bank's head office is located on Dame Street
, Dublin, where the public may exchange non-current Irish coinage and currency (both pre- and post-decimalization) for euro. This building attracted a lot of criticism, when built in 1980, both for its height and original roofline (in contravention of the planning permission) and for its brash appearance. The Currency Centre
at Sandyford
is the currency manufacture, warehouse and distribution site of the bank.
in 1922, the new state's trade was overwhelmingly with the United Kingdom (98% of Irish exports and 80% of imports in 1924), so the introduction of an independent currency was a low priority. British banknotes (British Treasury notes, Bank of England
notes), and notes issued by Irish banks circulated (but only the first were legal tender
) and coins remained in circulation.
Under the terms of the Coinage Act 1926, the Finance Minister was authorised to issue coins of silver, nickel, and bronze of the same denominations as the British coins already in circulation – however the Irish silver coins were to contain 75% silver as compared to the 50% silver coins issued by Britain at the time. These coins entered circulation on 12 December 1928.
Under the terms of the Currency Act 1927, a new unit of currency, the Saorstát Pound (Free State Pound) was created, which was to be maintained at parity with the British Pound Sterling
by a Currency Commission which would keep British government securities, sterling cash, and gold to keep a 1–1 relationship.
The Central Bank Act 1942 which came into effect on 1 February 1943 renamed the Currency Commission the Central Bank of Ireland, although the organisation did not at that time acquire many of the characteristics of a central bank:
This seriously limited the banks' ability to run an independent monetary policy.
In 1953 Governor Joseph Brennan
resigned, following disagreement with the Government over opinions on
economic and financial policy published in the Bank’s recent Annual Reports. The mid-1960s saw the Bank take over the normal day-to-day operations of exchange control from the Department of Finance. The Central Bank broadened its activities over the decades, but it remained in effect a currency board until the 1970s. In 1976 a liquidator was appointed to Irish Trust Bank Ltd and in 1982 Merchant Banking Ltd also collapsed. Staff over the years have gone on strike, the longest of which was in the winter of 1984/1985. The Bank assisted the Government in the administration of the Insurance Corporation of Ireland plc which failed in 1985 and threatened its parent Allied Irish Banks
. It took over the policing of the Irish Stock Exchange
on 1 November 2007, assuming day-to-day responsibility for detecting and investigating market abuse.
of fixed exchange rates broke down, and in the wake of the 1973 oil crisis inflation in Britain increased dramatically, and economic theory would suggest that a smaller economy whose currency is pegged to a larger one will suffer the larger economy's inflation rate. At the same time moves to create a money market in Dublin and the transfer in 1968 of the commercial banks' sterling assets to the Central Bank made it possible to contemplate a break in the link. In the mid to late 1970s, opinion within the bank was moving toward breaking the link with sterling and devaluing the Irish currency in order to limit inflationary effects from abroad.
At this time, however, an alternative option became available. In April 1978, the European Council
meeting in Copenhagen
decided to create a "zone of monetary stability" in Europe, and European Economic Community
institutions were invited to consider how to create such a zone. At the following Council meeting in Bremen, Germany in June 1978 the basic features of the European Monetary System
were outlined, including the creation of the ECU – European Currency Unit, a basket of the Community's currencies used to determine exchange rates, and the forerunner of the euro.
(or Punt).
The initial experience of the EMS was disappointing. It had been expected that the Irish Pound would appreciate in value against Sterling, and hence reduce inflation in Ireland, but in practice Sterling appreciated considerably in value thanks to its status as a petrocurrency
and to the tight monetary policies of the new British government of Margaret Thatcher
. By late 1980 the Irish Pound had fallen in value to less than 80 British pence, and Irish inflation was higher than British. Economic policy in Ireland was inconsistent with a "hard currency" policy, and the Irish Pound also failed to hold its value against the central rate of the Deutschmark, although it did appreciate in value against some of the other EMS currencies.
Eventually the EMS settled down (notwithstanding a crisis in 1992 when the Irish Pound was devalued by 10%), and Irish inflation was consistently the same or lower than Britain's inflation rate from 1987 onwards.
of 1992 (enacted into Irish law as the Eleventh Amendment to the Constitution of Ireland
by 70% of those voting in a referendum on 18 June 1992). This envisaged the start of monetary union on 1 January 1999 and the introduction of notes and coins on 1 January 2002.
The Central Bank began production of euro coins in September 1999, producing over a billion coins, weighing about 5,000 tons, with a value of 230 million euro before the introduction into circulation of the euro coins in January 2002. Production of euro banknotes began in June 2000, with 300 million notes worth 4 billion euro being produced in denominations of 5, 10, 20, 50, and 100 euro. Euro banknotes produced for the Central Bank are identified by having the serial number begin with the letter T. The Bank did not initially issue €200 or €500 euro banknotes, but has since begun to do so.
, which had to be nationalised in January 2009.
Their Annual Report, which was published just three months before the Government was forced to unconditionally guarantee the deposits of the Irish-owned banks,said: "The banks have negligible exposure to the sub-prime sector and they remain relatively healthy by the standard measures of capital, profitability and asset quality. This has been confirmed by the stress testing exercises we have carried out with the banks".
The next Annual Report had virtually nothing to say about how and why the Irish banking system was brought to the brink of collapse. Although there were four Central Bank directors on the board of the Financial Regulator, the Central Bank maintained it had no powers to intervene in the market. Yet, the Central Bank had the power to issue directives to the Financial Regulator if it thought it was conducting its business in a way that was contrary to overall Central Bank policy aims. None were issued.
In July 2009, a senior Central Bank official told the Oireachtas
Enterprise Committee that shareholders (later corrected/clarified to refer to institutional investors) who lost their money in the banking collapse were to blame for their fate and got what was coming to them for not keeping bank chiefs in check. The official did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developers.
. This was as a compromise between those who favoured a fully independent regulator and those who believed the Central Bank should maintain full control of regulation of the financial services industry. This division of the Bank authorized and regulated all financial institutions (including insurance undertakings, collective investment funds and credit unions) in Ireland.
Under the 2003 arrangements the Central Bank provided the Financial Regulator with services. The Regulator’s industry panel, which provided the Regulator with feedback on its charges and policies said in April 2007 that they had ‘‘major concerns with the quality and cost of the services’’ provided to the Regulator by the Central Bank.
Following the banking collapse of 2008–9, the Government re-unified the organization under a Central Bank of Ireland Commission to replace the board structures of the Central Bank and the Financial Services Regulatory Authority which became effective on 1 October 2010. A July 2009 editorial, in the respected, Sunday Business Post, said "returning the key powers of regulation to the Central Bank will be useless unless there is a fundamental change in the culture of the organisation. This does not require a complete change of personnel, but a change of key personnel." There can be no denying that the spinning off of the Financial Regulator from the functions of the Central Bank in 2003, was an outright failure.
In 2000 the Dail Public Accounts Committee "DIRT" enquiry, into the facilitation of wide spread tax evasion by the banking industry, was of the view that the Central Bank had an inappropriate and outmoded approach to supervision in the context of the growing sophistication of banking and the changing role of banks. It also found there was an insufficient concern with ethics and supervision other than from the standpoint of a traditional and narrow concern with prudential supervision in the Central Bank. The Chairman of the inquiry was "shocked and horrified" at the "careless and reckless" manner in which the Governor had quoted false statistics to the Public Accounts subcommittee.
The Central Bank was warned by the German regulator, BaFin, as early as 2004 that Sachsen LB's troubled Irish subsidiaries were involved in highly risky and under-scrutinised transactions worth as much as €30bn or 20 times the parent bank's capitalisation. Despite the warning, in 2007 the CBOI approved another Sachsen investment vehicle and two months later the stable of off-balance sheet companies needed a €17.3bn bail-out from the German association of savings banks to keep Sachsen afloat.
The Irish Brokers Association said there was "intense frustration and annoyance" about excessive red tape and the CBOI refusing to listen to them in 2005.
The same year the Central Bank was criticised for publishing a report, which it was said, read a bit like a promotional brochure for the money lending industry. It included a section devoted to arguing why moneylenders should be allowed to charge as much as they do. (188%-plus collection fees of up to 11%.)
The New York Times referred to Ireland
as the “Wild West of European finance” in April 2005 which was seen to underline the fragility of the Country's Financial Regulation system.
The Australian Authorities warned the Central Bank of the activities of person connected with the largest bankruptcy in that country's history. The CBOI did nothing, he went on to commit a US$500 million fraud and pleaded guilty in the US despite the crime being committed in Ireland.
Their consumer panel stated that the Central Bank was slow to respond to consumer issues and '"appears to seek complexity and obstacles rather than to seek consumer-oriented solutions to current and emerging problems"'. And it warned that this approach can undermine consumer confidence in the "efficacy of the regulatory process. "
The same month in 2006, a government-appointed panel that consists of banking and insurance representatives revealed widespread dissatisfaction with the Central Bank’s skills base.
Their industry panel, which provides feedback on its charges and policies said the levy on financial institutions for industry funding is perceived by industry as cumbersome and bureaucratic
They did not give their consumer panel a copy of the report of the working group set up following the collapse of a stockbrokers, where some investors were waiting over 7 years to have their claims processed. When the panel managed to get sight of it, they said it was "extremely deficient"
In July 2007, the Comptroller and Auditor General called for an independent review of the inspection process for financial institutions carried out by the Central Bank. The Comptroller urged the introduction of clearly defined risk categories for individual areas of financial services, so that the appropriate level of supervision required for each institution can be implemented in line with the risk involved.
Transcripts of phone calls by their senior staff suggest they gave tacit approval to the illicit movement of deposits involving Irish Life and Permanent
plc. "Okay, that's grand, right I think that's everything". The CBOI refused to say whether staff might face disciplinary procedures or sanctions if the transcripts were validated and investigated internally.
The CBOI knew that Allied Irish Banks
were overcharging consumers in FX fees but failed to act for a number of years.
They gave a parliamentary inquiry the "false impression" that they were unaware of it. The whistleblower
who gave them the information was requested to come to a meeting with the CBOI but was only invited to withdraw the allegations of wrongdoing and at the same time found himself removed from his position at Allied Irish Banks
without any reason given. After his case was highlighted in the media, the CBOI officially apologised on how the authorities treated him, eight years after alerting them of overcharging.
The same whistleblower also sent a report entitled ‘Special Investigation Goodbody Stockbrokers
– Trading in AIB Shares’ to the CBOI, in which questions were raised about the legality of a device used to trade in AIB shares through offshore locations in blacklisted tax havens Nevis
and Vanuatu
. No action was taken.
In 2008 as the Irish economy collapsed, it spent €115,000 on one staff party.
In early 2009, the Financial Services Consultative Consumer Panel, tasked with monitoring the performance of the Central Bank, said that most consumers have lost “significant amounts of money” due to the inadequacies of the financial regulatory structure. It also criticised the “deficient” response of the CBOI to threats to consumers, including the Irish property bubble
. In response they said “It is clear that the actions we took were insufficient and were not taken early enough,”
Then leader of the opposition and future Taoiseach
Enda Kenny
. and finance spokesman Richard Bruton
called for the board and senior management of the Central Bank to be sacked. Independent Senator, Shane Ross
said that the CBOI was an institution that had lost the faith of the international markets “They think it is actually genetically flawed. That is the problem we’re going to have to attack next.”
In January of the same year, 2009, the chief executive officer of Financial Regulation, Patrick Neary, retired early over the handling of the investigation into the €87 million secret directors' loans at Anglo Irish Bank
. The incumbent before that, had companies he is a director of, fined a total of €3.35 million by his previous employers the Central Bank, for risk control and reporting failures.
Ernst & Young
was hired, to advise the Central Bank of Ireland on the €440 billion bank guarantee scheme in January 2009, despite the fact that Ernst & Young
was being investigated arising from its audits of Anglo Irish Bank
and had also refused to appear before a parliamentary committee following the collapse of the same bank after receiving "legal advice". Their then head of financial regulation told the same committee that "a lay person would expect that issues of this nature and this magnitude would have been picked up” by the external auditors. At the same time the lowest tender was not chosen for the fit out of new offices in Spencer Dock in Dublin's docklands.
Following the failure of existing regulatory structures to prevent excessive lending to the property sector, consultants Mazars
, which were brought in to review operations said that "regulatory expertise was lacking in some areas." Responding to the highlighted weakness, Brian Lenihan
, the Minister for Finance, said "substantial additional staff with the skills, experience and market-based expertise will be appointed. Those recruited will also have the expertise to regulate the international financial services sector." He also announced that all consumer functions will be '"re-assigned"' to other agencies.
In July 2009, the CBOI blocked insurers and banks from making any critical statements containing "any references" to them by means either of "public press statements" or un-approved public references, whether "written or oral."
Two reports of an investigation into the "wholly inappropriate sale of perpectual bonds" by Davy Stockbrokers
to credit unions failed to involve any of the credit unions affected, leaving them "in the dark and powerless to add any value to the findings of this investigation”. The CBOI then declined to give them access to the reports. The Chairman of one the Credit Union's who suffered large losses told his members ‘‘The failure to publish the reports is to place the complaints process in a shroud of secrecy. Such a failure of openness, transparency and fairness can only serve to undermine confidence in the complaints process, forcing those with grievances into the courts. Such a course of action is not in the interest of any of the stakeholders.”
The next month, the head of the German Financial Regulator told the Bundestag
Finance Committee that the failure of the "terrible" Depfa Bank, which was completely supervised by its Irish equivalent, lead to the collapse of its German parent which forced Berlin to bail it out at a cost of €102 billion. The committee was told that the alternative was a run on German banks and the eventual collapse of the European finance system and “You would have woken up on Monday morning in the film Apocalypse Now
” The bank had just 319 employees but was allowed to guarantee loans valued at 14 times Ireland's Gross Domestic Product. A former Governor of the Central Bank of Ireland was a director of Depfa. Regulatory failure was acknowledged and this is a source of continuing friction with the German authorities.
The CBOI admitted that it had issued private warnings to over 30% of credit unions about their arrears levels, but refused to provide full updates on what percentage of credit union
loans are in arrears or how quickly they are increasing. This raised questions about their commitment to openness.
Transparency International
have questioned whether the Central Bank should continue to have an exemption from Freedom of Information legislation. Compliance experts have said "The most offensive confidentiality provision in Ireland is the one which protects
the Central Bank" Both the Financial Services Ombudsman and Information Commissioner, are among others, who called for a lifting of the confidentiality applied by the Central Bank to much of its work. Other EU regulators have a policy of transparency.
The operations of the Financial Regulator were severely criticised in a report marked "strictly confidential and not for publication", as being poor value for money. The report stated that there were too few specialist staff, compared with its peers. There were also serious shortcomings in the crucial supervisory area. and the report was particularly critical of the regulator’s senior management structure, concluding that a clear management and oversight framework, which ensures that issues are escalated through the organisation, was “not fully in place”.
Former Taoiseach
Bertie Ahern
, in a report in the Financial Times
said 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 and “if I had a chance again I wouldn’t do it”. "The banks were irresponsible," he admitted "But the Central Bank and the Financial Regulator seemed happy. They were never into us saying – ever – 'Listen, we must put legislation and control on the banks'. That never happened."
The director general of the Free Legal Advice Centres in October 2009 said, the code of conduct on mortgage arrears produced by the Central Bank was "deeply disappointing", and did not offer enough protection for consumers.
The Irish Times, the country's "newspaper of record
" said the organisation "has a death wish and its regulatory edict verges on the Pythonesque, eating into what is left of its credibility."
In a speech, the Governor of the Central Bank implied that "ignorance and inattention" were to blame for regulatory failure.
The Consumer Consultative Panel, in December 2009 said that they were unable to function for almost a year because officials ignored requests for meetings and "we believe it is unacceptable that the board of the financial regulation section has failed to take responsibility for their stewardship of the organisation during the last six years.They did not understand many of the sectors and financial products it regulates. These failings undermines their ability to enhance or enforce corporate governance in the wider financial services sector.It also warned "that the reforms announced to date were not sufficient to avert more crisis' in the future."
Following a February 2010 review by the Comptroller and Auditor General, the organisation admitted that it paid for 52 spouses of staff to go on foreign trips over a two-year period.
.png)
The next month opposition politicians described an advertisement seeking to appoint a consultant to oversee its art collection as insensitive and inappropriate at the dept of the credit crunch depression.
The Central Bank should give an annual statement to the Dáil on bank supervision to make regulation '‘more accountable’’, the Comptroller and Auditor General said in March 2010 after highlighting shortcomings in financial regulation leading up to the financial crisis .
The next month, the head of Financial Regulation outlined his shock at the poor level of financial regulation he discovered when he started his job the previous January and "it is clear to me we need to undertake a fundamental overhaul of the regulatory model for financial services in Ireland. He also said that there was a "critical absence of intellectual firepower within his staff
At the same time the influential German newspaper Siddeutsche Zeitung described as "remarkable" the CBOI's handling of a whistleblower
's revelations that the Irish subsidiary of Unicredit
Bank had 40 times the permitted level of deviation of minimum liquidity requirements.
They also did not inform the parent bank and the relevant regulatory authority on the continent.
High risk and sloppy lending practices at the Irish Nationwide
Building Society
were reported to the Central Bank by external accountants over a long period but did not change its behaviour. The former head of compliance, became a whistle blower by reporting "dodgy practices" but again the authorities did nothing. It required a €5.4 billion Government bailout, leaving it effectively in State ownership. A letter which they received concerning the legality of the illicit loans by the Building Society to Sean FitzPatrick
had "gone missing". Management at Irish Nationwide used to arrange meetings with the CBOI for late on a Friday afternoon, knowing that the regulator's staff would not want for the encounter to last for more than an hour because it would nibble into their weekend.
The chief executive of Financial Regulation was asked at a parliamentary committee "In regard to baseline qualifications, if your staff is regulating the financial sector, should it not be the case where they should have the bare minimum required in the market as well, a qualified financial adviser status, or they've gone through certain industry exams. It's obviously important to have." But the chief executive disagreed: "I don't agree with that. But I think I'm conflicted because I've never taken a professional exam in my life."
Reports on the financial crisis did not ask the opinion of their consumer consultative panel, who in a statement said it was "very disappointed that, in particular, the report by the Governor did not refer to the work of the panel in highlighting many of the failings of the regulation in the past number of years." Fresh areas of concern included the lack of minute-taking at senior levels in the Financial Regulation section and among its sub-board.
"If this is the situation that prevails, then this has to be a source of concern regarding the standard of governance."
One of the reports noted that the Central Bank had found substantial departures from credit policy during inspections of banks, but failed adequately to follow up on its concerns. Secondly intrusive demands from regulatory staff could be and were set aside after direct representations were made to senior regulators.
Two months later, it emerged that their regulatory section authorised the Quinn Group
(which subsequently went into administration) to borrow €169 million from Anglo Irish Bank
in order to buy Anglo Irish shares (which subsequently had to be nationalised at a cost of €5,500 for every man, woman and child in the State). Its actions were described as "like the Vatican
running an abortion clinic
."
On her September 2010 state tour to Russia
, the President of Ireland Mary McAleese
, highlighting the importance of competence,
criticised the Central Bank for its role in the run-up to the financial crisis
which resulted in tens of thousands of people in mortgage arrears.
Almost simultaneously external reviewers highlighted the "unacceptable” pace of investigation into how the financial system in Ireland came close to collapse “leaves a lot to be desired”. This was in contrast to the United States and Iceland
, which have moved faster to examine what went wrong. “Furthermore, there has been very little outcome from ongoing investigations into dealings at some of our major institutions" by the Central Bank.”
Criminal prosecutions by An Garda Siochana against managers in banks who committed offences are being undermined as CBOI staff were aware of the alleged offences, took no action to stop them and thus provided an arguable defence to those who committed wrongdoing, as they could reasonably claim they were acting with the approval of regulatory authorities at all times. One line of inquiry being investigated by detectives is that they did not inform the Department of Finance of all facts they knew about the banking industry. Two arrests were made following a complaint made by two officials of the Central Bank.
The European Commission in a November 2010 review of the financial crisis said “Some national supervisory authorities failed dramatically. We know that in Ireland there was almost no supervision of the large banks.” Two months later, EU Commission president Jose Manuel Barroso in an angry exchange in the European Parliament
, with a vehemence that shocked his audience, said that "the problems of Ireland were created by the irresponsible financial behaviour of some Irish institutions, and by the lack of supervision in the Irish market."
Five years elapsed before they forced Davy Stockbrokers
to inform investors, who lost tens of millions of Euro, that ‘‘the instrument sold was not compliant with the Trustees (Authorised Investments) Order at the time of its sale as it was not listed on a recognised Stock Exchange’’ and it "dealt as principal in both the purchase and sale and was in breach of the rules of the Irish Stock Exchange
by not disclosing this fact on its contract note’’. The effected parties had settled their claim against the stockbroker, before receiving the notification, and it was suggested they could have received much more compensation if they had ensured that their adverse findings about the case was communicated. The full report was not published and no regulatory action was taken.
.png)
Within days, after the arrival in Ireland of the International Monetary Fund
, they admitted that the stress tests on banks, that the CBOI conducted 4 months earlier "failed to convince financial markets" and the level of capital that the banks needed which they recently described as at "shock and awe" safety levels would be increased by 50 per cent. Two months later, a European Commission
document revealed, that a second stress test on Irish Banks, would be "peer reviewed" by the Banca d'Italia
and the French Commission Bancaire "to strenghten the external credibility of the process". This would be in addition to the consultants hired to help the Central Bank, at a cost of nearly €40 million, Boston Consulting Group
, Blackrock Solutions, and Barclays Capital
. However Boston Consulting, expressed reservations about the process-saying it would have preferred to carry out more file reviews of bank assets, blaming "time and resource constraints imposed by the Central Bank."
The €50 billion of emergency funding given to Irish banks by the Central Bank of Ireland could pose a threat to the very solvency of the Central Bank itself, a report by Citi concluded in January 2011.
In March 2011, the Free Legal Advice Centres criticised the CBOI for failing to regulate hire-purchase agreements saying "that some of the worst credit practices take place on garage forecourts when people are sold hire purchase for a car."
.png)
Comparisons with the Bank of Finland
--the equivalent of the Central Bank of Ireland—which has a much more complex banking system to safeguard, show it halved its staff since the introduction of the Euro to 650. The CBOI will have more than doubled its headcount to 1400 by 2012, many of whom are on an average salary of €80,000 a year and work 32.5 hours per week or 6.5 hours a day. The level of its business travel expenses, featured in the bestselling book "Wasters", increased by 46% in one year. At one time, the Governor was said to be one of the highest paid Central Bankers in the world. An "endemic culture of rewarding failure" has meant that not one person in the Central Bank has been sacked for their role in the worst financial and economic crisis in Ireland's history, a leading economist said in August 2011.
Investors blasted the CBOI in October 2011 after losing tens of million of Euro in what a High Court Judge described as "a sort of an Irish ponzi scheme" saying regulators should have spotted the problems earlier. An inquiry will be carried out, on how the Central Bank handled the affair.
The Governor (Irish
An Gobharnóir) of the Bank is appointed by the President of Ireland
on advice of the Irish Government
.
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
and historically the central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
. The bank was the issuer of Irish pound
Irish pound
The Irish pound was the currency of Ireland until 2002. Its ISO 4217 code was IEP, and the usual notation was the prefix £...
banknotes and coinage until the introduction of the euro currency, and now provides this service for the European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
.
The bank was founded in 1943 and since 1 January 1972 has been the banker of the Irish Government in accordance with the Central Bank Act 1971, which can be seen in legislative terms as completing the long transition from a currency board
Currency board
A currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target....
to a fully functional central bank.
The bank's head office is located on Dame Street
Dame Street
Dame Street is a large thoroughfare in Dublin, Ireland. The street is the location of many banks such as AIB, Ulster Bank and the Central Bank of Ireland. It is close to Ireland's oldest university, Trinity College, Dublin, founded in 1592, the entrance to which is a popular meeting spot.During...
, Dublin, where the public may exchange non-current Irish coinage and currency (both pre- and post-decimalization) for euro. This building attracted a lot of criticism, when built in 1980, both for its height and original roofline (in contravention of the planning permission) and for its brash appearance. The Currency Centre
Currency Centre
The Currency Centre is the mint of coins and printer of banknotes for the Central Bank of Ireland, including the euro currency. The centre is located at Sandyford, Dublin, Ireland. The centre does not print the complete range of euro banknotes...
at Sandyford
Sandyford
Sandyford is a suburb of Dublin, located in Dún Laoghaire-Rathdown County, Ireland. A major part of Sandyford today is composed of the Sandyford Industrial Estate and related developments.- Location and access :...
is the currency manufacture, warehouse and distribution site of the bank.
Functions and objectives
The Central Bank Reform Act, 2010, created a new single unitary body – the Central Bank of Ireland – responsible for both central banking and financial regulation. The new structure replaced the previous related entities, the Central Bank and the Financial Services Authority of Ireland and the Financial Regulator. The Act commenced on 1 October 2010.Eurosystem effectiveness and price stability
It is responsible for maintaining price stability through monetary policy formulation at ECB level. They aim to enhance the effectiveness of participation in monetary policy formulation through the provision of quality briefings for the ECB Governing Council, and are also responsible for the effective implementation of monetary policy.Financial stability
They contribute to financial stability domestically and across the euro area. A key focus is the resolution of the financial crisis and monitoring overall liquidity for the banking system.Regulation of financial institutions and markets
To minimise the risk of failure by ensuring compliance with prudential and other requirements. They take a risk based approach supported by open and challenging dialogue with firms by assertive staff, underpinned by a credible threat of enforcement. The purpose of securities market regulation is to promote an efficient and fair securities market.Consumers of financial services are protected
The objective is to protect customers and investors through conduct of business rules and other measures.Economic advice and financial statistics
Economic analysis and research designed to inform economic policy making across a range of areas. A key priority is to provide authoritative economic advice to the Irish Government by ensuring that such advice is relevant and timely.Payment system and currency
Ensuring that payment and securities settlement systems are safe, effective and efficient and that access to such systems is not restricted. They also manufacture, issue, store, process and authenticate Euro bank notes and coins.History
On the independence of the Irish Free StateIrish Free State
The Irish Free State was the state established as a Dominion on 6 December 1922 under the Anglo-Irish Treaty, signed by the British government and Irish representatives exactly twelve months beforehand...
in 1922, the new state's trade was overwhelmingly with the United Kingdom (98% of Irish exports and 80% of imports in 1924), so the introduction of an independent currency was a low priority. British banknotes (British Treasury notes, Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
notes), and notes issued by Irish banks circulated (but only the first were legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
) and coins remained in circulation.
Under the terms of the Coinage Act 1926, the Finance Minister was authorised to issue coins of silver, nickel, and bronze of the same denominations as the British coins already in circulation – however the Irish silver coins were to contain 75% silver as compared to the 50% silver coins issued by Britain at the time. These coins entered circulation on 12 December 1928.
Under the terms of the Currency Act 1927, a new unit of currency, the Saorstát Pound (Free State Pound) was created, which was to be maintained at parity with the British Pound Sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
by a Currency Commission which would keep British government securities, sterling cash, and gold to keep a 1–1 relationship.
The Central Bank
- it was not given custody of the cash reserves of the commercial banks
- it had no statutory power to restrict credit, though it could promote it
- the Bank of IrelandBank of IrelandThe Bank of Ireland is a commercial bank operation in Ireland, which is one of the 'Big Four' in both parts of the island.Historically the premier banking organisation in Ireland, the Bank occupies a unique position in Irish banking history...
remained the government's banker - the conditions for influencing credit through open-market operations did not yet exist
- Ireland's external monetary reserves were largely held as external assets of the commercial banks
This seriously limited the banks' ability to run an independent monetary policy.
In 1953 Governor Joseph Brennan
Joseph Brennan
Joseph Brennan may refer to:*Joseph Charles Brennan , English recipient of the Victoria Cross*Joseph Brennan , Irish civil servant...
resigned, following disagreement with the Government over opinions on
economic and financial policy published in the Bank’s recent Annual Reports. The mid-1960s saw the Bank take over the normal day-to-day operations of exchange control from the Department of Finance. The Central Bank broadened its activities over the decades, but it remained in effect a currency board until the 1970s. In 1976 a liquidator was appointed to Irish Trust Bank Ltd and in 1982 Merchant Banking Ltd also collapsed. Staff over the years have gone on strike, the longest of which was in the winter of 1984/1985. The Bank assisted the Government in the administration of the Insurance Corporation of Ireland plc which failed in 1985 and threatened its parent Allied Irish Banks
Allied Irish Banks
Allied Irish Banks p.l.c. is a major commercial bank based in Ireland.AIB is one of the so called "big four" commercial banks in the state. The bank has one of the largest branch networks in Ireland; only Bank of Ireland fully rivals it. AIB offers a full range of personal and corporate banking...
. It took over the policing of the Irish Stock Exchange
Irish Stock Exchange
-History:The Irish Stock Exchange is Ireland's only stock exchange and has been in existence since 1793. It is an Irish private company limited by guarantee. It was first recognised by legislation in 1799 when the Irish Parliament passed the Stock Exchange Act...
on 1 November 2007, assuming day-to-day responsibility for detecting and investigating market abuse.
Decimalisation
The 1970s were a decade of change, which began with the decimalisation of the currency which came into effect on 15 February 1971, when the decimal coinage was released into circulation (although 5p, 10p, and 50p coins were released a few years earlier, as they had exact equivalents in old currency units). Decimalisation would have provided an ideal opportunity to break the link with Sterling, but there was not much demand for this at that time. In 1972 however, the Bretton Woods systemBretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
of fixed exchange rates broke down, and in the wake of the 1973 oil crisis inflation in Britain increased dramatically, and economic theory would suggest that a smaller economy whose currency is pegged to a larger one will suffer the larger economy's inflation rate. At the same time moves to create a money market in Dublin and the transfer in 1968 of the commercial banks' sterling assets to the Central Bank made it possible to contemplate a break in the link. In the mid to late 1970s, opinion within the bank was moving toward breaking the link with sterling and devaluing the Irish currency in order to limit inflationary effects from abroad.
At this time, however, an alternative option became available. In April 1978, the European Council
European Council
The European Council is an institution of the European Union. It comprises the heads of state or government of the EU member states, along with the President of the European Commission and the President of the European Council, currently Herman Van Rompuy...
meeting in Copenhagen
Copenhagen
Copenhagen is the capital and largest city of Denmark, with an urban population of 1,199,224 and a metropolitan population of 1,930,260 . With the completion of the transnational Øresund Bridge in 2000, Copenhagen has become the centre of the increasingly integrating Øresund Region...
decided to create a "zone of monetary stability" in Europe, and European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
institutions were invited to consider how to create such a zone. At the following Council meeting in Bremen, Germany in June 1978 the basic features of the European Monetary System
European Monetary System
There are three stages of monetary cooperation in the European Union.-Background:European currency exchange rate stability has been one of the most important objectives of European policy makers at least since the Second World War....
were outlined, including the creation of the ECU – European Currency Unit, a basket of the Community's currencies used to determine exchange rates, and the forerunner of the euro.
The European Monetary System
The Irish government had to decide whether or not to participate in the EMS. If the EMS had included all the European Community's currencies, it would have provided stability for 75% of Ireland's external trade, but in the event Britain, which still accounted for 50% of Ireland's external trade, decided to stay out of the EMS. Despite this, on 15 December 1978 it was announced that Ireland would participate in the EMS. Countries were given the option of either a 2.25% or 6% margin of fluctuation within the EMS' Exchange Rate Mechanism (ERM), and Ireland took the narrower margin. The EMS started on 13 March 1979, and towards the end of the month Sterling started to gain in value against the EMS currencies because of rising oil prices, and by 30 March Sterling breached the upper fluctuation band limit of the Belgian franc and the Irish currency could no longer track Sterling. After over 50 years, the parity of the Irish and British currencies was broken, and the Irish currency became known as the Irish poundIrish pound
The Irish pound was the currency of Ireland until 2002. Its ISO 4217 code was IEP, and the usual notation was the prefix £...
(or Punt).
The initial experience of the EMS was disappointing. It had been expected that the Irish Pound would appreciate in value against Sterling, and hence reduce inflation in Ireland, but in practice Sterling appreciated considerably in value thanks to its status as a petrocurrency
Petrocurrency
Petrocurrency is a portmanteau neologism used with three distinct meanings, though often confused:#Trading surpluses of oil producing nations, originally called petrodollars...
and to the tight monetary policies of the new British government of Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
. By late 1980 the Irish Pound had fallen in value to less than 80 British pence, and Irish inflation was higher than British. Economic policy in Ireland was inconsistent with a "hard currency" policy, and the Irish Pound also failed to hold its value against the central rate of the Deutschmark, although it did appreciate in value against some of the other EMS currencies.
Eventually the EMS settled down (notwithstanding a crisis in 1992 when the Irish Pound was devalued by 10%), and Irish inflation was consistently the same or lower than Britain's inflation rate from 1987 onwards.
Towards the Euro
The idea of a single European currency goes back to the Schumann Plan of 1950. The first blueprint for how to go about implementing the currency, the Werner Report of 1970 was not proceeded with, but the ultimate aim was always kept in mind. The Delors Report endorsed by the Madrid Summit of June 1989 envisaged a three-stage process to monetary union, and this was given legal authority by the Maastricht TreatyMaastricht Treaty
The Maastricht Treaty was signed on 7 February 1992 by the members of the European Community in Maastricht, Netherlands. On 9–10 December 1991, the same city hosted the European Council which drafted the treaty...
of 1992 (enacted into Irish law as the Eleventh Amendment to the Constitution of Ireland
Constitution of Ireland
The Constitution of Ireland is the fundamental law of the Irish state. The constitution falls broadly within the liberal democratic tradition. It establishes an independent state based on a system of representative democracy and guarantees certain fundamental rights, along with a popularly elected...
by 70% of those voting in a referendum on 18 June 1992). This envisaged the start of monetary union on 1 January 1999 and the introduction of notes and coins on 1 January 2002.
The Central Bank began production of euro coins in September 1999, producing over a billion coins, weighing about 5,000 tons, with a value of 230 million euro before the introduction into circulation of the euro coins in January 2002. Production of euro banknotes began in June 2000, with 300 million notes worth 4 billion euro being produced in denominations of 5, 10, 20, 50, and 100 euro. Euro banknotes produced for the Central Bank are identified by having the serial number begin with the letter T. The Bank did not initially issue €200 or €500 euro banknotes, but has since begun to do so.
Banking system collapse resulting from property bubble
Despite growing evidence of an unsustainable property price and construction bubble during the mid-2000s, corrective regulatory action was delayed and timid. After the bubble burst, Irish banks faced mounting losses on a scale which exposed them to a collapse of confidence following the Lehman's bankruptcy in September 2008; they then suffered acute liquidity pressures which had to be met by Central Bank support, including emergency lending. Management abuses, which the CBOI did not restrain, were also revealed at Anglo Irish BankAnglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
, which had to be nationalised in January 2009.
Their Annual Report, which was published just three months before the Government was forced to unconditionally guarantee the deposits of the Irish-owned banks,said: "The banks have negligible exposure to the sub-prime sector and they remain relatively healthy by the standard measures of capital, profitability and asset quality. This has been confirmed by the stress testing exercises we have carried out with the banks".
The next Annual Report had virtually nothing to say about how and why the Irish banking system was brought to the brink of collapse. Although there were four Central Bank directors on the board of the Financial Regulator, the Central Bank maintained it had no powers to intervene in the market. Yet, the Central Bank had the power to issue directives to the Financial Regulator if it thought it was conducting its business in a way that was contrary to overall Central Bank policy aims. None were issued.
In July 2009, a senior Central Bank official told the Oireachtas
Oireachtas
The Oireachtas , sometimes referred to as Oireachtas Éireann, is the "national parliament" or legislature of Ireland. The Oireachtas consists of:*The President of Ireland*The two Houses of the Oireachtas :**Dáil Éireann...
Enterprise Committee that shareholders (later corrected/clarified to refer to institutional investors) who lost their money in the banking collapse were to blame for their fate and got what was coming to them for not keeping bank chiefs in check. The official did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developers.
The Financial Regulator
In 2003 a new separate division of the Central Bank, with its own Chairman, Chief Executive, and board, was established as the Irish Financial Services Regulatory AuthorityIrish Financial Services Regulatory Authority
The Financial Regulator , officially the Irish Financial Services Regulatory Authority, was the single regulator of all financial institutions in Ireland from May 2003 until October 2010 and was a "constituent part" of the Central Bank of Ireland...
. This was as a compromise between those who favoured a fully independent regulator and those who believed the Central Bank should maintain full control of regulation of the financial services industry. This division of the Bank authorized and regulated all financial institutions (including insurance undertakings, collective investment funds and credit unions) in Ireland.
Under the 2003 arrangements the Central Bank provided the Financial Regulator with services. The Regulator’s industry panel, which provided the Regulator with feedback on its charges and policies said in April 2007 that they had ‘‘major concerns with the quality and cost of the services’’ provided to the Regulator by the Central Bank.
Following the banking collapse of 2008–9, the Government re-unified the organization under a Central Bank of Ireland Commission to replace the board structures of the Central Bank and the Financial Services Regulatory Authority which became effective on 1 October 2010. A July 2009 editorial, in the respected, Sunday Business Post, said "returning the key powers of regulation to the Central Bank will be useless unless there is a fundamental change in the culture of the organisation. This does not require a complete change of personnel, but a change of key personnel." There can be no denying that the spinning off of the Financial Regulator from the functions of the Central Bank in 2003, was an outright failure.
Criticism
From the mid-1970s up to the early 1990s, it was aware of, but took no action to stop, an organised large scale tax evasion scheme organised by Ansbacher Bank for the benefit of wealthy and powerful Irish people. Included in those who were breaking the law were a director of the Central Bank and the architect given the commission to design their headquarters (in contravention of planning permission).In 2000 the Dail Public Accounts Committee "DIRT" enquiry, into the facilitation of wide spread tax evasion by the banking industry, was of the view that the Central Bank had an inappropriate and outmoded approach to supervision in the context of the growing sophistication of banking and the changing role of banks. It also found there was an insufficient concern with ethics and supervision other than from the standpoint of a traditional and narrow concern with prudential supervision in the Central Bank. The Chairman of the inquiry was "shocked and horrified" at the "careless and reckless" manner in which the Governor had quoted false statistics to the Public Accounts subcommittee.
The Central Bank was warned by the German regulator, BaFin, as early as 2004 that Sachsen LB's troubled Irish subsidiaries were involved in highly risky and under-scrutinised transactions worth as much as €30bn or 20 times the parent bank's capitalisation. Despite the warning, in 2007 the CBOI approved another Sachsen investment vehicle and two months later the stable of off-balance sheet companies needed a €17.3bn bail-out from the German association of savings banks to keep Sachsen afloat.
The Irish Brokers Association said there was "intense frustration and annoyance" about excessive red tape and the CBOI refusing to listen to them in 2005.
The same year the Central Bank was criticised for publishing a report, which it was said, read a bit like a promotional brochure for the money lending industry. It included a section devoted to arguing why moneylenders should be allowed to charge as much as they do. (188%-plus collection fees of up to 11%.)
The New York Times referred to Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
as the “Wild West of European finance” in April 2005 which was seen to underline the fragility of the Country's Financial Regulation system.
The Australian Authorities warned the Central Bank of the activities of person connected with the largest bankruptcy in that country's history. The CBOI did nothing, he went on to commit a US$500 million fraud and pleaded guilty in the US despite the crime being committed in Ireland.
Their consumer panel stated that the Central Bank was slow to respond to consumer issues and '"appears to seek complexity and obstacles rather than to seek consumer-oriented solutions to current and emerging problems"'. And it warned that this approach can undermine consumer confidence in the "efficacy of the regulatory process. "
The same month in 2006, a government-appointed panel that consists of banking and insurance representatives revealed widespread dissatisfaction with the Central Bank’s skills base.
Their industry panel, which provides feedback on its charges and policies said the levy on financial institutions for industry funding is perceived by industry as cumbersome and bureaucratic
They did not give their consumer panel a copy of the report of the working group set up following the collapse of a stockbrokers, where some investors were waiting over 7 years to have their claims processed. When the panel managed to get sight of it, they said it was "extremely deficient"
In July 2007, the Comptroller and Auditor General called for an independent review of the inspection process for financial institutions carried out by the Central Bank. The Comptroller urged the introduction of clearly defined risk categories for individual areas of financial services, so that the appropriate level of supervision required for each institution can be implemented in line with the risk involved.
Transcripts of phone calls by their senior staff suggest they gave tacit approval to the illicit movement of deposits involving Irish Life and Permanent
Irish Life and Permanent
Irish Life and Permanent, Plc or IL&P is a provider of personal financial services in Ireland. IL&P enjoys limited liability....
plc. "Okay, that's grand, right I think that's everything". The CBOI refused to say whether staff might face disciplinary procedures or sanctions if the transcripts were validated and investigated internally.
The CBOI knew that Allied Irish Banks
Allied Irish Banks
Allied Irish Banks p.l.c. is a major commercial bank based in Ireland.AIB is one of the so called "big four" commercial banks in the state. The bank has one of the largest branch networks in Ireland; only Bank of Ireland fully rivals it. AIB offers a full range of personal and corporate banking...
were overcharging consumers in FX fees but failed to act for a number of years.
They gave a parliamentary inquiry the "false impression" that they were unaware of it. The whistleblower
Whistleblower
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department, a public or private organization, or a company...
who gave them the information was requested to come to a meeting with the CBOI but was only invited to withdraw the allegations of wrongdoing and at the same time found himself removed from his position at Allied Irish Banks
Allied Irish Banks
Allied Irish Banks p.l.c. is a major commercial bank based in Ireland.AIB is one of the so called "big four" commercial banks in the state. The bank has one of the largest branch networks in Ireland; only Bank of Ireland fully rivals it. AIB offers a full range of personal and corporate banking...
without any reason given. After his case was highlighted in the media, the CBOI officially apologised on how the authorities treated him, eight years after alerting them of overcharging.
The same whistleblower also sent a report entitled ‘Special Investigation Goodbody Stockbrokers
Goodbody Stockbrokers
Goodbody Stockbrokers is Ireland's longest established stockbroking firm with roots dating back to 1877. As well as being one of the leading institutional brokers, it is one of the largest private client firms in Ireland. It is a member firm of the Irish Stock Exchange and a SETS participant of the...
– Trading in AIB Shares’ to the CBOI, in which questions were raised about the legality of a device used to trade in AIB shares through offshore locations in blacklisted tax havens Nevis
Nevis
Nevis is an island in the Caribbean Sea, located near the northern end of the Lesser Antilles archipelago, about 350 km east-southeast of Puerto Rico and 80 km west of Antigua. The 93 km² island is part of the inner arc of the Leeward Islands chain of the West Indies...
and Vanuatu
Vanuatu
Vanuatu , officially the Republic of Vanuatu , is an island nation located in the South Pacific Ocean. The archipelago, which is of volcanic origin, is some east of northern Australia, northeast of New Caledonia, west of Fiji, and southeast of the Solomon Islands, near New Guinea.Vanuatu was...
. No action was taken.
In 2008 as the Irish economy collapsed, it spent €115,000 on one staff party.
In early 2009, the Financial Services Consultative Consumer Panel, tasked with monitoring the performance of the Central Bank, said that most consumers have lost “significant amounts of money” due to the inadequacies of the financial regulatory structure. It also criticised the “deficient” response of the CBOI to threats to consumers, including the Irish property bubble
Irish property bubble
The property bubble in the Republic of Ireland began in 2000 and peaked in 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices....
. In response they said “It is clear that the actions we took were insufficient and were not taken early enough,”
Then leader of the opposition and future Taoiseach
Taoiseach
The Taoiseach is the head of government or prime minister of Ireland. The Taoiseach is appointed by the President upon the nomination of Dáil Éireann, the lower house of the Oireachtas , and must, in order to remain in office, retain the support of a majority in the Dáil.The current Taoiseach is...
Enda Kenny
Enda Kenny
Enda Kenny is an Irish Fine Gael politician, and has been the Taoiseach since 2011. He has led Fine Gael since 2002. He served as Minister for Tourism and Trade from 1994 to 1997. He is also a two-term Vice President of the European People's Party.Kenny has been a Teachta Dála for Mayo since...
. and finance spokesman Richard Bruton
Richard Bruton
Richard Bruton is an Irish Fine Gael politician and has been a Teachta Dála for the Dublin North Central constituency since 1982. He was appointed as Minister for Jobs, Enterprise and Innovation on 9 March 2011...
called for the board and senior management of the Central Bank to be sacked. Independent Senator, Shane Ross
Shane Ross
Shane Peter Nathaniel Ross is an independent Irish politician and Business Editor of the Sunday Independent. He was the longest-serving member of Seanad Éireann , until he was elected to Dáil Éireann for the constituency of Dublin South at the 2011 general election.-Early life and career:Born in...
said that the CBOI was an institution that had lost the faith of the international markets “They think it is actually genetically flawed. That is the problem we’re going to have to attack next.”
In January of the same year, 2009, the chief executive officer of Financial Regulation, Patrick Neary, retired early over the handling of the investigation into the €87 million secret directors' loans at Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
. The incumbent before that, had companies he is a director of, fined a total of €3.35 million by his previous employers the Central Bank, for risk control and reporting failures.
Ernst & Young
Ernst & Young
Ernst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
was hired, to advise the Central Bank of Ireland on the €440 billion bank guarantee scheme in January 2009, despite the fact that Ernst & Young
Ernst & Young
Ernst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
was being investigated arising from its audits of Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
and had also refused to appear before a parliamentary committee following the collapse of the same bank after receiving "legal advice". Their then head of financial regulation told the same committee that "a lay person would expect that issues of this nature and this magnitude would have been picked up” by the external auditors. At the same time the lowest tender was not chosen for the fit out of new offices in Spencer Dock in Dublin's docklands.
Following the failure of existing regulatory structures to prevent excessive lending to the property sector, consultants Mazars
Mazars
Mazars is a global audit, accounting and consulting group employing more than 13,000 professionals in 61 countries through member firms. With head offices in France, Mazars is the 14th largest accounting firm in the world...
, which were brought in to review operations said that "regulatory expertise was lacking in some areas." Responding to the highlighted weakness, Brian Lenihan
Brian Lenihan, Jnr
Brian Joseph Lenihan was an Irish Fianna Fáil politician and barrister who served in the government of Ireland as Minister for Justice, Equality and Law Reform from 2007 to 2008 and as Minister for Finance from 2008 to 2011...
, the Minister for Finance, said "substantial additional staff with the skills, experience and market-based expertise will be appointed. Those recruited will also have the expertise to regulate the international financial services sector." He also announced that all consumer functions will be '"re-assigned"' to other agencies.
In July 2009, the CBOI blocked insurers and banks from making any critical statements containing "any references" to them by means either of "public press statements" or un-approved public references, whether "written or oral."
Two reports of an investigation into the "wholly inappropriate sale of perpectual bonds" by Davy Stockbrokers
Davy Stockbrokers
Davy is Ireland's largest stockbroker, wealth manager and financial advisor and has offices in Dublin, Belfast, Cork, Galway and London. Davy offer a range of services to private clients, small businesses, corporations and institutional investors....
to credit unions failed to involve any of the credit unions affected, leaving them "in the dark and powerless to add any value to the findings of this investigation”. The CBOI then declined to give them access to the reports. The Chairman of one the Credit Union's who suffered large losses told his members ‘‘The failure to publish the reports is to place the complaints process in a shroud of secrecy. Such a failure of openness, transparency and fairness can only serve to undermine confidence in the complaints process, forcing those with grievances into the courts. Such a course of action is not in the interest of any of the stakeholders.”
The next month, the head of the German Financial Regulator told the Bundestag
Bundestag
The Bundestag is a federal legislative body in Germany. In practice Germany is governed by a bicameral legislature, of which the Bundestag serves as the lower house and the Bundesrat the upper house. The Bundestag is established by the German Basic Law of 1949, as the successor to the earlier...
Finance Committee that the failure of the "terrible" Depfa Bank, which was completely supervised by its Irish equivalent, lead to the collapse of its German parent which forced Berlin to bail it out at a cost of €102 billion. The committee was told that the alternative was a run on German banks and the eventual collapse of the European finance system and “You would have woken up on Monday morning in the film Apocalypse Now
Apocalypse Now
Apocalypse Now is a 1979 American war film set during the Vietnam War, produced and directed by Francis Ford Coppola. The central character is US Army special operations officer Captain Benjamin L. Willard , of MACV-SOG, an assassin sent to kill the renegade and presumed insane Special Forces...
” The bank had just 319 employees but was allowed to guarantee loans valued at 14 times Ireland's Gross Domestic Product. A former Governor of the Central Bank of Ireland was a director of Depfa. Regulatory failure was acknowledged and this is a source of continuing friction with the German authorities.
The CBOI admitted that it had issued private warnings to over 30% of credit unions about their arrears levels, but refused to provide full updates on what percentage of credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
loans are in arrears or how quickly they are increasing. This raised questions about their commitment to openness.
Transparency International
Transparency International
Transparency International is a non-governmental organization that monitors and publicizes corporate and political corruption in international development. It publishes an annual Corruption Perceptions Index, a comparative listing of corruption worldwide...
have questioned whether the Central Bank should continue to have an exemption from Freedom of Information legislation. Compliance experts have said "The most offensive confidentiality provision in Ireland is the one which protects
the Central Bank" Both the Financial Services Ombudsman and Information Commissioner, are among others, who called for a lifting of the confidentiality applied by the Central Bank to much of its work. Other EU regulators have a policy of transparency.
The operations of the Financial Regulator were severely criticised in a report marked "strictly confidential and not for publication", as being poor value for money. The report stated that there were too few specialist staff, compared with its peers. There were also serious shortcomings in the crucial supervisory area. and the report was particularly critical of the regulator’s senior management structure, concluding that a clear management and oversight framework, which ensures that issues are escalated through the organisation, was “not fully in place”.
Former Taoiseach
Taoiseach
The Taoiseach is the head of government or prime minister of Ireland. The Taoiseach is appointed by the President upon the nomination of Dáil Éireann, the lower house of the Oireachtas , and must, in order to remain in office, retain the support of a majority in the Dáil.The current Taoiseach is...
Bertie Ahern
Bertie Ahern
Patrick Bartholomew "Bertie" Ahern is a former Irish politician who served as Taoiseach of Ireland from 26 June 1997 to 7 May 2008....
, in a report in the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
said 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 and “if I had a chance again I wouldn’t do it”. "The banks were irresponsible," he admitted "But the Central Bank and the Financial Regulator seemed happy. They were never into us saying – ever – 'Listen, we must put legislation and control on the banks'. That never happened."
The director general of the Free Legal Advice Centres in October 2009 said, the code of conduct on mortgage arrears produced by the Central Bank was "deeply disappointing", and did not offer enough protection for consumers.
The Irish Times, the country's "newspaper of record
Newspaper of record
Newspaper of record is a term that may refer either to any publicly available newspaper that has been authorized by a government to publish public or legal notices , or any major newspaper that has a large circulation and whose editorial and news-gathering functions are considered professional and...
" said the organisation "has a death wish and its regulatory edict verges on the Pythonesque, eating into what is left of its credibility."
In a speech, the Governor of the Central Bank implied that "ignorance and inattention" were to blame for regulatory failure.
The Consumer Consultative Panel, in December 2009 said that they were unable to function for almost a year because officials ignored requests for meetings and "we believe it is unacceptable that the board of the financial regulation section has failed to take responsibility for their stewardship of the organisation during the last six years.They did not understand many of the sectors and financial products it regulates. These failings undermines their ability to enhance or enforce corporate governance in the wider financial services sector.It also warned "that the reforms announced to date were not sufficient to avert more crisis' in the future."
Following a February 2010 review by the Comptroller and Auditor General, the organisation admitted that it paid for 52 spouses of staff to go on foreign trips over a two-year period.
The Central Bank should give an annual statement to the Dáil on bank supervision to make regulation '‘more accountable’’, the Comptroller and Auditor General said in March 2010 after highlighting shortcomings in financial regulation leading up to the financial crisis .
The next month, the head of Financial Regulation outlined his shock at the poor level of financial regulation he discovered when he started his job the previous January and "it is clear to me we need to undertake a fundamental overhaul of the regulatory model for financial services in Ireland. He also said that there was a "critical absence of intellectual firepower within his staff
At the same time the influential German newspaper Siddeutsche Zeitung described as "remarkable" the CBOI's handling of a whistleblower
Whistleblower
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department, a public or private organization, or a company...
's revelations that the Irish subsidiary of Unicredit
UniCredit
UniCredit SpA is an Italy-based, pan-European banking organization, with aprox 40 million customers and operations in 22 countries.- Geography :...
Bank had 40 times the permitted level of deviation of minimum liquidity requirements.
They also did not inform the parent bank and the relevant regulatory authority on the continent.
High risk and sloppy lending practices at the Irish Nationwide
Irish Nationwide
Irish Nationwide Building Society was a financial institution in Ireland from 1873 to 2011. One of the country's oldest financial institutions, it was originally called the Irish Industrial Building Society; it changed its name in 1975 when it had just five staff...
Building Society
Building society
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially mortgage lending. These institutions are found in the United Kingdom and several other countries.The term "building society"...
were reported to the Central Bank by external accountants over a long period but did not change its behaviour. The former head of compliance, became a whistle blower by reporting "dodgy practices" but again the authorities did nothing. It required a €5.4 billion Government bailout, leaving it effectively in State ownership. A letter which they received concerning the legality of the illicit loans by the Building Society to Sean FitzPatrick
Sean FitzPatrick
Seán FitzPatrick was chairman of Anglo Irish Bank until he resigned in December 2008 amid mounting revelations over hidden loans...
had "gone missing". Management at Irish Nationwide used to arrange meetings with the CBOI for late on a Friday afternoon, knowing that the regulator's staff would not want for the encounter to last for more than an hour because it would nibble into their weekend.
The chief executive of Financial Regulation was asked at a parliamentary committee "In regard to baseline qualifications, if your staff is regulating the financial sector, should it not be the case where they should have the bare minimum required in the market as well, a qualified financial adviser status, or they've gone through certain industry exams. It's obviously important to have." But the chief executive disagreed: "I don't agree with that. But I think I'm conflicted because I've never taken a professional exam in my life."
Reports on the financial crisis did not ask the opinion of their consumer consultative panel, who in a statement said it was "very disappointed that, in particular, the report by the Governor did not refer to the work of the panel in highlighting many of the failings of the regulation in the past number of years." Fresh areas of concern included the lack of minute-taking at senior levels in the Financial Regulation section and among its sub-board.
"If this is the situation that prevails, then this has to be a source of concern regarding the standard of governance."
One of the reports noted that the Central Bank had found substantial departures from credit policy during inspections of banks, but failed adequately to follow up on its concerns. Secondly intrusive demands from regulatory staff could be and were set aside after direct representations were made to senior regulators.
Two months later, it emerged that their regulatory section authorised the Quinn Group
Quinn Group
The QUINN group is a business group headquartered in Derrylin, County Fermanagh, Northern Ireland. The privately owned group has ventured into cement and concrete products, container glass, general insurance, radiators, plastics, hotels, and real estate...
(which subsequently went into administration) to borrow €169 million from Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
in order to buy Anglo Irish shares (which subsequently had to be nationalised at a cost of €5,500 for every man, woman and child in the State). Its actions were described as "like the Vatican
Holy See
The Holy See is the episcopal jurisdiction of the Catholic Church in Rome, in which its Bishop is commonly known as the Pope. It is the preeminent episcopal see of the Catholic Church, forming the central government of the Church. As such, diplomatically, and in other spheres the Holy See acts and...
running an abortion clinic
Abortion clinic
An abortion clinic is a medical facility that primarily performs or specializes in abortions. Such clinics may be public medical centers or private medical practices.-Canada:*There were 197 abortion providers in Canada in 2001....
."
On her September 2010 state tour to Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
, the President of Ireland Mary McAleese
Mary McAleese
Mary Patricia McAleese served as the eighth President of Ireland from 1997 to 2011. She was the second female president and was first elected in 1997 succeeding Mary Robinson, making McAleese the world's first woman to succeed another as president. She was re-elected unopposed for a second term in...
, highlighting the importance of competence,
criticised the Central Bank for its role in the run-up to the financial crisis
which resulted in tens of thousands of people in mortgage arrears.
Almost simultaneously external reviewers highlighted the "unacceptable” pace of investigation into how the financial system in Ireland came close to collapse “leaves a lot to be desired”. This was in contrast to the United States and Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...
, which have moved faster to examine what went wrong. “Furthermore, there has been very little outcome from ongoing investigations into dealings at some of our major institutions" by the Central Bank.”
Criminal prosecutions by An Garda Siochana against managers in banks who committed offences are being undermined as CBOI staff were aware of the alleged offences, took no action to stop them and thus provided an arguable defence to those who committed wrongdoing, as they could reasonably claim they were acting with the approval of regulatory authorities at all times. One line of inquiry being investigated by detectives is that they did not inform the Department of Finance of all facts they knew about the banking industry. Two arrests were made following a complaint made by two officials of the Central Bank.
The European Commission in a November 2010 review of the financial crisis said “Some national supervisory authorities failed dramatically. We know that in Ireland there was almost no supervision of the large banks.” Two months later, EU Commission president Jose Manuel Barroso in an angry exchange in the European Parliament
European Parliament
The European Parliament is the directly elected parliamentary institution of the European Union . Together with the Council of the European Union and the Commission, it exercises the legislative function of the EU and it has been described as one of the most powerful legislatures in the world...
, with a vehemence that shocked his audience, said that "the problems of Ireland were created by the irresponsible financial behaviour of some Irish institutions, and by the lack of supervision in the Irish market."
Five years elapsed before they forced Davy Stockbrokers
Davy Stockbrokers
Davy is Ireland's largest stockbroker, wealth manager and financial advisor and has offices in Dublin, Belfast, Cork, Galway and London. Davy offer a range of services to private clients, small businesses, corporations and institutional investors....
to inform investors, who lost tens of millions of Euro, that ‘‘the instrument sold was not compliant with the Trustees (Authorised Investments) Order at the time of its sale as it was not listed on a recognised Stock Exchange’’ and it "dealt as principal in both the purchase and sale and was in breach of the rules of the Irish Stock Exchange
Irish Stock Exchange
-History:The Irish Stock Exchange is Ireland's only stock exchange and has been in existence since 1793. It is an Irish private company limited by guarantee. It was first recognised by legislation in 1799 when the Irish Parliament passed the Stock Exchange Act...
by not disclosing this fact on its contract note’’. The effected parties had settled their claim against the stockbroker, before receiving the notification, and it was suggested they could have received much more compensation if they had ensured that their adverse findings about the case was communicated. The full report was not published and no regulatory action was taken.
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, they admitted that the stress tests on banks, that the CBOI conducted 4 months earlier "failed to convince financial markets" and the level of capital that the banks needed which they recently described as at "shock and awe" safety levels would be increased by 50 per cent. Two months later, a European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
document revealed, that a second stress test on Irish Banks, would be "peer reviewed" by the Banca d'Italia
Banca d'Italia
Banca d'Italia is the central bank of Italy and part of the European System of Central Banks. It is located in Palazzo Koch, Roma, via Nazionale...
and the French Commission Bancaire "to strenghten the external credibility of the process". This would be in addition to the consultants hired to help the Central Bank, at a cost of nearly €40 million, Boston Consulting Group
Boston Consulting Group
The Boston Consulting Group is a global management consulting firm with offices in 42 countries. It is recognized as one of the most prestigious management consulting firms in the world. It is one of only three companies to appear in the top 15 of Fortunes "Best Companies to Work For" report for...
, Blackrock Solutions, and Barclays Capital
Barclays Capital
Barclays Capital is a global British investment bank. It is the investment banking division of Barclays plc which has a balance sheet of over £1.2 trillion . Barclays Capital provides financing and risk management services to large companies, institutions and government clients. It is a primary...
. However Boston Consulting, expressed reservations about the process-saying it would have preferred to carry out more file reviews of bank assets, blaming "time and resource constraints imposed by the Central Bank."
The €50 billion of emergency funding given to Irish banks by the Central Bank of Ireland could pose a threat to the very solvency of the Central Bank itself, a report by Citi concluded in January 2011.
In March 2011, the Free Legal Advice Centres criticised the CBOI for failing to regulate hire-purchase agreements saying "that some of the worst credit practices take place on garage forecourts when people are sold hire purchase for a car."
Bank of Finland
The Bank of Finland is the central bank of Finland. It is the fourth oldest central bank in the world.-History:The Bank of Finland was established on 1 March in 1812 in the city of Turku by Alexander I of Russia. In 1819 it was relocated to Helsinki...
--the equivalent of the Central Bank of Ireland—which has a much more complex banking system to safeguard, show it halved its staff since the introduction of the Euro to 650. The CBOI will have more than doubled its headcount to 1400 by 2012, many of whom are on an average salary of €80,000 a year and work 32.5 hours per week or 6.5 hours a day. The level of its business travel expenses, featured in the bestselling book "Wasters", increased by 46% in one year. At one time, the Governor was said to be one of the highest paid Central Bankers in the world. An "endemic culture of rewarding failure" has meant that not one person in the Central Bank has been sacked for their role in the worst financial and economic crisis in Ireland's history, a leading economist said in August 2011.
Investors blasted the CBOI in October 2011 after losing tens of million of Euro in what a High Court Judge described as "a sort of an Irish ponzi scheme" saying regulators should have spotted the problems earlier. An inquiry will be carried out, on how the Central Bank handled the affair.
List of Governors of the Bank
Irish language
Irish , also known as Irish Gaelic, is a Goidelic language of the Indo-European language family, originating in Ireland and historically spoken by the Irish people. Irish is now spoken as a first language by a minority of Irish people, as well as being a second language of a larger proportion of...
An Gobharnóir) of the Bank is appointed by the President of Ireland
President of Ireland
The President of Ireland is the head of state of Ireland. The President is usually directly elected by the people for seven years, and can be elected for a maximum of two terms. The presidency is largely a ceremonial office, but the President does exercise certain limited powers with absolute...
on advice of the Irish Government
Irish Government
The Government of Ireland is the cabinet that exercises executive authority in Ireland.-Members of the Government:Membership of the Government is regulated fundamentally by the Constitution of Ireland. The Government is headed by a prime minister called the Taoiseach...
.
- Joseph BrennanJoseph Brennan (civil servant)Joseph Brennan was a senior Irish civil servant born in Bandon, County Cork, Ireland on 18 November 1887.In 1909 he entered Christ Church, Cambridge where he studied mathematics and then switched to classics. In successive years he obtained a first in Latin and Greek...
(1887–1963; Governor 1943–53) - James J. McElligott (1890–1974; Governor 1953–60)
- Maurice Gerard MoynihanMaurice Gerard MoynihanMaurice Gerard Moynihan was a senior Irish civil servant, co-drafter of the 1937 Constitution of Ireland, Secretary of the Government of the Irish Free State in 1937, Governor of the Central Bank of Ireland in 1960, and Knight Commander of the Papal Order of St...
(1902–99; Governor 1960–69) - T.K. Whitaker (Thomas Kenneth) (1916– ; Governor 1969–76)
- C.H. Murray (Charles Henry) (1917–2008; Governor 1976–81)
- Tomás F. Ó Cofaigh (Governor 1981–87)
- Maurice F. Doyle (1922–2009; Governor 1987–94)
- Muiris S. Ó Conaill (Maurice O'Connell) (1936– ; Governor 1994–2002)
- John Hurley (Governor 2002–2009)
- Patrick HonohanPatrick HonohanPatrick Honohan is an economist who was appointed Governor of the Central Bank of Ireland in September 2009. Among his main tasks are the challenge of helping to resolve the 2008–2010 Irish banking crisis. He is married with one son.-Education:Honohan graduated with a B.A...
(1949– ; Governor since September 2009)
See also
- Banknotes of the Republic of IrelandBanknotes of the Republic of IrelandThe Irish Free State, subsequently known as Ireland, resolved in the mid-1920s to design its own coins and banknotes; at the time of the currency's first issue, the Free State government decided to peg its value to the pound sterling...
- Economy of the Republic of IrelandEconomy of the Republic of IrelandThe economy of Ireland has transformed in recent years from an agricultural focus to a modern knowledge economy, focusing on services and high-tech industries and dependent on trade, industry and investment. In terms of GDP per capita, Ireland is ranked as one of the wealthiest countries in the...
- Euro
- Irish poundIrish poundThe Irish pound was the currency of Ireland until 2002. Its ISO 4217 code was IEP, and the usual notation was the prefix £...
- Coins of Ireland
- European Central BankEuropean Central BankThe European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...