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DURING FOUR HOURS of evidence to the banking inquiry yesterday, Central Bank governor Patrick Honohan offered a unique insight into his conversations with Brian Lenihan before and after the September 2008 bank guarantee.
As we reported yesterday, the now deceased Lenihan was of the view that Anglo Irish Bank and Irish Nationwide should have been nationalised immediately after the bank guarantee was issued and that junior bondholders should have been burnt.
But Lenihan was overruled on the night and the rest is history, as we all know.
While this was the big story from yesterday’s evidence, Honohan also gave an interesting account of conversations he had with Lenihan both before and after the guarantee was issued.
Honohan was not appointed to the head up the Central Bank until September 2009 but around the time the guarantee was being considered he was professor of international financial economics and development at Trinity.
Under questioning from Sinn Féin’s Pearse Doherty yesterday, Honohan revealed a conversation with Lenihan in the summer of 2008:
“We talked about fiscal policy because the big topic was the adjustment of fiscal policy which was going wrong. We did not talk at all about the banks. It might have been earlier than August, say in June, but I could probably find the date,” Honohan said.
Doherty wanted to know if – given Honohan’s expertise – he was at all consulted by Lenihan or anyone in the Department of Finance in the lead-up to the guarantee.
Honohan shed light on another conversation he had with Lenihan’s officials in December 2008 when the future governor said he was “quite concerned”, particularly in relation to the decision to cover junior bondholders.
“At that stage I really did not have a concept that this was all going to end up as big in terms of tens of billions of euro. I thought it was going to be quite important how the Government handled the recapitalisation.
“I wondered if it put in €2 billion or €3 billion of capital whether that would make the subordinated debt holders get off free. So I wrote to the Minister, got a response from his office in December and I talked to some of the officials at that time.”
Honohan confirmed to Doherty that he never raised concerns about the Irish banking model with Lenihan and then recalled his next meeting with the finance minister around Christmas 2008 – after the guarantee:
“When I met him the next time, which must have been around Christmas 2008, he said: ‘Maybe I should have talked to you about banking’.
This prompted Doherty to say that perhaps the pair should have discussed banking in that summer 2008 meeting.
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“Lenihan was of the view that Anglo Irish Bank and Irish Nationwide should have been nationalised immediately after the bank guarantee was issued and that junior bondholders should have been burnt”. Lenihan had a better grasp of what to do than those who overruled him. I wish he was still alive today.
We all wish that he was alive today to answer questions about what happened, but being loyal to party before country I doubt that he would be as open and honest as those from outside of fianna fail from covering up a succession of bad management at the highest level.
If his superiors had listened to him, the final years of his life might have been a bit easier for him. Poor man.
Brian Lenihan was a patriot of the highest order. He went into a friend of mines house a month before he died and told them that the saddest thing for him was that he would never see his country off its knees in his life time….for the record I have never voted for FF….in the past I canvassed for FG and Labour…..
Hell freezer over Ireland because of that bank guarantee.
Brian Lenihan was a Finna fail politician , sad he spent his final years dealing with this stressful situation. He introduced the USC charge as a three year temporary measure, when medical card holders hit the airways after his budget he reduced the charge for them within 24 hours. Finna fail took social economic policies and listened to the people. The same could not be said for Labour and Fine Gael they have crucified us with economic regressive budgets and no social economic policy.
RIP Mr Lenihan
He was ” quite concerned over the decision to cover junior Bondholders ” funny that, an expert in hindsight , with no one to contradict his excellent foresight .
No Trcihet or E.U. or I.M..F – then no substance …
This inquiry is not worth commenting on when one sees this .
Dermot , if that is so , then refrain from commenting .
It is interesting to see how little even the acknowledged experts knew and understood of the scale of impact of the credit bubble which produced the massive asset price bubble, the property balloon.
The question is how much do the experts now know. Do they really comprehend the true dynamics of the financial system.
I consider that Homohan dates the start of the credit bubble much later than when it actually started.
Has it crossed your mind that he may be lying?
What pressure did ecb put on ? Holahan strikes me as honest.
Joe, an honest person doesnt get to be head of the CB. This whole thing is a white wash. But the good little Irish will lap up this fiction.
JB,
Wait to see the outcome of the inquiry before making a judgement, the Oireachtas have a real chance with this to really deliver for the country, it was a good article, people need to know what happened.
Honohan now has all the answers ! !. Where was he when the house of cards was falling down around us ?. We are all experts now after the event.
Not one word from Martin..???. he was there at the time.. !
In reality in the run up to the guarantee the Banks particularly Anglo Irish were being deliberately economical with the truth drip feeding the politicians with just enough information to railroad them into the blanket guarantee. Banks are only interested in profit and when that ingredient is missing they had to find a way to cover their losses, cue the guarantee.
“He who controls the past controls the future. He who controls the present controls the past.”
So was Enda ect ect. Anyone over 6 years in the Dail of any party was there but I don’t recall any great furore or objections to benchmarking or pay rises at the time. Sinn Fein were too busy with OTHER THINGS at the time to even bother.
Why was the last Regulator not prosecuted!
He did not do his job properly!
When will Fine Gael learn that they gave not put any of the developments,bankers or politicians who destroyed our economy into prison!
Yet the crucify all the innocent Taxpayers with extra taxes!
NAMA adds insult to injury by paying many of the developers big salaries!
We live in a crazy Ciuntry!
White collar workers do not go to prison in Ireland!
Crazy!
Fine Gael wonder why they are not lived by the Irish electorate!
Depending on a few mustached men in backrooms or a few University Professors or a “bank” of economists in the CB or Dept of Finance “to mind” grown adults (men and women) in their businesses and corporations and private lives from making a total mess is daft. No amount of process or organisational or technical changes which may arise from this banking inquiry will prevent the next screw-up unless fundamental changes are made.
A fundamental change that provides a sound framework for sane rational judgement for ALL citizens in both their personal and work lives is what is needed to assure a successful future for Irish citizens. France seems to have this as they don’t have recurring crashes. Looks like the teaching of Philosophy in French secondary schools is what delivers the good decision making framework to all their citizens to make sane judgments in their society.
Slander and liable are easy to do to a person who does not know about it or are dead, this is a fact and a great excuse to pass the buck in many cases, but I haven’t got a clue with this story.
The decision to bail out the banks was obviously a combined decision by all the powers led by Minister
Lenihan and as such the country has to bear the responsibility rather than trying to hang tails on donkeys.
While that decision in retrospect looks imprudent given that the level of bank debts were unknown and that the EC and the ECB would not come to the party except on commercial terms later with provisos that has hamstrung the government since then.
On a human level most fair-minded people can empathise with Brian Lenihan’s predicament economically, politically
and health wise and for many he epitomised the Republic in its darkest hour.
have your say