Jill Kerby

REGULATOR MUST COME CLEAN ABOUT THE STATE OF BANKS

As you contemplate which of your Christmas presents doesn’t fit, doesn’t work or doesn’t ring the bells or whistles it advertises, at least there is now a consumer protection code in place that allows you to bring the item back for refunds or exchange or to go to someone in authority to make a complaint.

It wasn’t always so in this country.  Ten years ago, there wasn’t anywhere near the protection available now even for the most expensive purchases you could possible make – for a house, investment funds or policy, a pension.  Regulation up to 2000 was incredibly ad hoc in this country with consumer regulation in financial services in particular, left pretty much to the banking and investment firms themselves.

Those regulations have tightened up since the consumer division of the Financial Regulator (now back under the umbrella of the Central Bank) was set up in the mid-2000s, but it’s only been since the new, Central Bank regulator Matthew Elderfield was appointed a year ago last October, that the financial service companies of Ireland are finding out what it means to have a proper watchdog patrolling your turf.

I wrote an open letter at the time to Mr Elderfield, a former CEO of the Bermuda Monetary Authority, reminding him that Irish consumers were, ultimately, the people to whom he should be answering. A year after he began trying to come to grips with the disaster zone that his predecessors left him at the Central Bank, it is still a major work in progress. 

Despite the thousands of hours that he and his new team of regulators have clocked up in making sense of what happened in the Irish banks, by their input into Nama and the negotiations with the IMF, the EU and European Central Bank on the debt crisis, the new Regulator has been able to amend and construct consumer protocols and regulations, including a major review of the Consumer Protection Code.

I noted back in October 2009 that his ex-colleagues at the UK Financial Services Authority had produced a review and protocol for the mortgage market and how important a similar protocol was needed here, even if curtailing the worst of the banks’ lending practises after the mortgage market has collapsed, was very much in the ‘horse, bolt and barn door’ category of reform.

Nevertheless, that new Irish mortgage protocol is also now in place.  Some day, when people do start buying homes again, chances are, because of this piece of regulation, fewer people will end up borrowing themselves into lifelong penury or insolvency. The strict new lending rules will make it harder to buy their first home but it should also help stop property bubbles being blown up and mortgage lenders imploding.

The emergency mortgage arrears measures that Elderfield has facilitated this past year with the cooperation of the Irish Banking Federation and consumer groups, has temporarily postponed the repossession of thousands of private homes.  But the Regulator, and his expert group ruled out debt forgiveness on the grounds of moral hazard risk. 

Was it really his or their job to make such a judgment?  He must know that the massive personal debt and arrears problem in this country has only been deferred and could ultimately make things worse for the banks, not better.

The other pressing issue that I suggested the new sheriff tackle – the loss of confidence in the banks by ordinary people – hasn’t been adequately dealt with by anyone in authority. (The Regulator’s new team has been successfully in strengthening and improving the supervision and regulation of the credit unions, which should be very reassuring to all credit union members.) 

Irish bank guarantees of varying duration have come and gone and come again, but the people of Ireland continue to worry, with good reason, not just about the return on their funds from the insolvent, but the return of their funds.

Billions in deposits have been taken out of Anglo Irish, AIB, Bank of Ireland, Irish Nationwide and the EBS by institutional investors (who know when the game is up) but also by big and small savers, much of it held the elderly, who simply cannot afford to lose their life savings and may be the only people in their families who remain solvent.

Will the Regulator address this genuine fear in 2011?  Is it within his remit to say what might happen to the savings and investments of ordinary Irish people if our sovereign default deepens?  Or if the crisis in the eurozone gets to the point where our membership of the euro is in doubt?

Back in late 2009, there were all sorts of financial consumer issues that I felt needed a good examination by a proper regulator who had the interests of the people of Ireland foremost in his sights, such as the abuses inherent in commission remuneration and the lack of general financial education.

Events overtook Elderfield.  Like our roads and footpaths, the money supply of Ireland has nearly frozen solid and those other issues are not so pressing.

 Instead, Matthew Elderfield will do this country a great service in 2011 if he just manages to tell us the truth about the position of our financial institutions, the currency we use and how safe it is to save, invest and spend.