FRANKFURT (MNI) – The governor of Ireland’s central bank, Patrick
Honohan, Tuesday repeated his assertion that Irish regulators failed to
counter the mismanagement of the country’s banks.

In his introductory statement delivered to the country’s joint
parliamentary Committee on Finance and the Public Service, Honohan, who
sits on the European Central Bank’s Governing Council, listed three
reasons why adequate supervision was lacking.

“First, a regulatory approach which was excessively deferential and
accommodating; insufficiently challenging and not persistent enough,”
Honohan said.

“Second, under-resourced bank supervision that, by relying on good
governance and risk-management procedures, neglected quantitative
assessment and the need to ensure sufficient capital to absorb the
growing property-related risks.”

Lastly, Honohan highlighted the unwillingness of the Irish central
bank (CBFSAI) to act with “sufficient decisiveness” to counter the
problem and “head it off in time.”

The central banker also pointed a finger at macroeconomic and
budgetary policies, which he said allowed the economy to rely, to a
“clearly unsustainable extent,” on the construction sector and other
sources of government revenue.

“A less accommodating and procyclical policy would have greatly
reduced the need for preventive action from the CBFSAI,” Honohan said.

However, Honohan conceded that there was still much about risk
management and decision-making at major banks that was not understood
and he suggested that an independent review of at least the two big
banks be carried out, at the very least as “an exercise on a forward
looking basis”.

Nevertheless, Honohan stressed that “we have learnt our lesson” and
that new procedures are already being put into place, with more
annoucements expected in the coming weeks.

–Frankfurt bureau: +49-69-720 142; email: —

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