The Government welcomes the preliminary reports ‘The Sources of Ireland’s Banking Crisis’ by Mr Klaus Regling and Mr Max Watson and ‘The Irish Banking Crisis – Regulatory and Financial Stability Policy 2003-2008,’ by Governor Patrick Honohan, which were published today and commends the authors for their expert analysis and assessment of the issues referred to them.
The Government accepts the seven key policy lessons outlined in Part IV of the Regling and Watson Report.
Consistent with the framework for the investigation of the banking crisis announced by the Minister last January, the findings and conclusions of the reports should now provide the basis for the preparation of terms of reference for a statutory Commission of Investigation.
These reports have drawn attention to a number of significant issues that require further investigation, including:
- bank practices, risk management and governance failures in the covered institutions,
- the performance of the Central Bank and Financial Regulator; and,
- the role of fiscal policy and the macroeconomic management of the economy overall.
The Regling and Watson report distinguishes between issues that lend themselves to a formal process of investigation and issues that are, in general, less amenable to a legally-oriented process of investigation and may be more appropriate to policy review.
In his report, Professor Honohan included a comprehensive examination of the issues leading up to the provision of the Guarantee to covered institutions. The Government welcomes this examination.
The Government has decided to refer the reports to the Joint Oireachtas Committee on Finance and the Public Service for its views on issues that should be covered by the terms of reference of the Commission of Investigation. The Government will also submit to the Committee for its consideration draft terms of reference agreed at its meeting today
The Government requests the views of the Committee on the key policy lessons in relation to macroeconomic management set out in the Regling report. These are:
1. The need to mitigate through fiscal and prudential policies any mismatch between monetary conditions and the national business cycle;
2. the appropriate management and surveillance of imbalances and risks that can build up in both the private and the public sectors of national economies in the Eurozone including ‘external’ imbalances vis-à-vis other euro area members ,and the way those imbalances are funded;
3. the design of fiscal policies so as to build in sufficient allowances for temporary revenues so as to avoid erosion of the tax base and, in this context, the case for independent institutional sources for economic and fiscal projections and for national fiscal rules in due course,
The Government requests that the Committee report its views on how these lessons should be applied by 15 September 2010.
The Minister for Finance will make himself available to the Committee to answer any questions it might have, particularly in relation to the steps taken to manage the financial crisis up to and including the provision of guarantees to financial institutions at the end of September 2008. The Minister intends to make available to the Committee documents which were prepared in the crisis management period.