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We cannot take enforcement action on every single bank breach.
THOSE WERE THE words of Ed Sibley, deputy governor of the Central Bank last week.
Since then, the full extent of the tracker mortgage scandal has been revealed, the Finance Minister Paschal Donohoe as “admonished” the bankers, CEOs of the financial institutions eventually apologised and they now have a deadline to give back the money wrongly taken from their customers.
So, is that it? No punishment? No sanctions? Two reports on the scandal and the culture within the banking sector and we’ll call it a day? Surely not?
Those are just some of the questions which are circulating since the revelations that this mess could impact well over 20,000 customers and could end up costing over €1 billion.
Taoiseach Leo Varadkar said the government is not acting on the basis of trust with the banks. He also acknowledged that it will take a very long time before the public trusts the banks again, pointing out that the tracker mortgage issue following on from the banking crisis was not exactly helping the bank’s public persona.
What do people want then?
Accountability, for one. For those that moved people off their tracker mortgage, who denied them the option of one, and who took the money from the people to be held accountable – by both the Central Bank and the gardaí, if necessary.
Is there a track record of this being done in the past? Not so much, it would appear.
While the tracker mortgage issue was the talking point of the Central Bank’s appearance last week, there was another case mentioned that might have been missed by most.
Towards the end of the day-long grilling at the Oireachtas Finance Committee, the chairperson, Fianna Fáil’s John McGuinness, raised the case of Jonathan Sugarman.
You have probably heard of Sugarman – the bank executive-turned-whistleblower.
He was the risk manager at Unicredit Bank Ireland in 2007. This was the Irish arm of Italian firm Unicredit, one of the largest banking and financial services companies in the world.
Sugarman, an Israeli citizen, worked for the Dutch Ministry for Economic Affairs and a bank in Israel before moving to Ireland in 1999.
He worked for Microsoft Finance before taking up roles at the risk departments in several banks and finally joining Unicredit in May 2007. It was Sugarman’s job to make sure that the company’s Irish arm was sticking to the rules.
However, only a few weeks after joining Unicredit, Sugarman said that he started noticing liquidity breaches. He has since given evidence to the Oireachtas Finance Committee about the incident.
What are liquidity breaches?
Liquidity is how much money a bank has available. When banks lend money out, they have to hold a certain amount of cash or assets so that they can give people their money back if debts are called in.
In Unicredit Ireland’s case, Sugarman said that the bank was required to hold assets and cash in reserve equivalent to 90% of its liabilities. This was due to liquidity regulations that came into force on 1 July 2007.
The lender was allowed to drop below this by about a percentage point, but any breach in excess of this was meant to be reported to the banking regulator, the Central Bank.
Sugarman said that Unicredit Ireland was involved in deals in the hundreds of millions – and in some cases, billions – of euro. Accounts for Unicredit Bank Ireland show that it had assets of €32 billion as of the end of 2007.
He said that, when the new rules came into force in July, Unicredit Ireland was frequently breaching its liquidity requirements, and on occasion would only be holding enough cash and assets to meet 70% of its debts.
What did he do about it?
Sugarman said that he was told not to be concerned after he raised the issue with his former bosses, and that the liquidity figures were inaccurate due to technical glitches.
Still uneasy with what he had found, he resigned from Unicredit after notifying the Central Bank of the issue. He also turned himself in to Rathmines Garda Station in 2009 but alleges nothing was done.
Seeing a correlation between the Unicredit issue and the tracker mortgage scandal, McGuinness said the lack of action by both the Central Bank and the gardaí when the banks do wrong is sending a terrible message to the people of Ireland.
In the Unicredit case, McGuinness asked why the gardaí and the Central Bank did not step in after Sugarman reported himself to the gardaí.
“I believe it was brought to the attention of the Governor – from the Garda Commissioner’s office which dealt with queries raised during the hearing the committee had with Jonathan Sugarman.
“The letter from the Commissioner’s office stated that liquidity ratios are set by the Central Bank in its role of economic governance. It continued that in 2012 and 2013 the Central Bank notified An Garda Síochána, in accordance with its statutory function, that it intended to deal with these breaches of liquidity ratios with the bank in question, Unicredit Bank Ireland plc, through administrative sanction procedures. What happened? What were those sanctions?” he asked.
Deputy Governer of the Central Bank Ed Sibly said they did take enforcement actions against Unicredit Bank.
McGuinness asked why the gardaí were not involved if there had been a breach in the law.
“He [Sugarman] specifically said at this committee that he had reported the matter to gardaí at Rathmines. They, in turn, had noted it in the station book. Afterwards, the detective unit informed him a banking specialist would be in touch but that did not happen.
“When the committee asked the Garda Commissioner’s office to comment on this and explain at what stage the inquiry was, we were told the Central Bank had suggested it was dealing with it and that it would be dealt with through administrative sanction procedures.
“I presume from that letter that the bank was in some way sanctioned by financial penalty or whatever for this breach, which apparently was 20 times more than what was allowed. What was the sanction?” he asked again.
The Governor of the Central Bank, Philip Lane, spoke up to state there was an inspection by the Central Bank in early October 2007 and the investigation concluded that the reported breach “did not suggest a wider and more systematic erosion of overall liquidity and that the bank was back in compliance within the limits in 24 hours”.
Breaches by the banks
The governor then outlined how such breaches by banks are dealt with by the Central Bank – highlighting what is the customary approach to take with the banks over such breaches.
Additional claims were made in 2010, [in relation to Unicredit] both in the media and the Seanad, that there have been numerous breaches of liquidity by the firm in question. A further investigation was undertaken at the instruction of the Central Bank. An independent third-party firm was engaged to check compliance with the liquidity requirements. This investigation did not highlight any further breaches.
There was significant investigation of the issues raised and the matter is closed.
More generally, the overall message reflected in the letter cited by the Chairman is that if there are liquidity breaches, the correct way to deal with them is through investigation. If an investigation establishes a systematic regulatory violation, administrative sanctions procedure would be invoked. The general answer is correct. If we see systematic breaches, that is how it would be handled.
Lane said that “initial breach was closed quickly and did not suggest a wider or more systematic erosion of overall liquidity”.
Unhappy with his response outlining that if breaches are done just once, or are not viewed as “systemic” then little or no action is followed up on, McGuinness said the legislation is clear.
The legislation at the time referred to a breach. A breach is a breach. Every single breach on each day was a breach.
Garda investigation
He said the letter from the [Garda] commissioner’s office about the Jonathan Sugarman case specifically mentioned that he reported a breach in the law, so why was there not a garda investigation?
From the letter, it is clear to me, that this liquidity breach was to be dealt with through administrative sanctions, according to the Central Bank at the time. I find it unacceptable that a bank of that size breached the legislation and broke the law so that the individual concerned took it upon himself to report it to the Central Bank.
Despite that breach and breaking of the law no action was taken. The commissioner, however, has said that someone within the bank had to have communicated some form of message to the bank, relative to the Jonathan Sugarman issue, to say that it would be dealt with under administrative sanction procedures.
Sibly intervened to state that, in this case, the Central Bank “formed a view” on the seriousness of the allegations raised by Sugarman.
“We follow that up in a proportionate manner. There are a number of tools we can use around breaches and these relate to the proportionate approach, the seriousness of the breach, the persistence of the breach and so on. Some of those actions may be private in nature such as a supervisory warning, and some may be more public in nature, which apply in areas such as when we talked about transparency,” he explained.
No such thing as zero-tolerance when it comes to Irish banks
Derville Rowland from the Central Bank clarified the approach to such matters.
The approach to enforcement is this jurisdiction – and in other jurisdictions such as the UK – is not to have a zero-tolerance approach. Not all breaches across the regulatory spectrum will end up as an enforcement case.
One would not be able to bring that volume of cases. We have a strategy of targeted enforcement and reactive enforcement. Reactive enforcement is when the most serious cases come and we make the space to give resources to bring those cases forward. The tracker issue is a very good example of that approach.
Highlighting her point again – that a zero-tolerance approach does not exist in Ireland to such breaches – she said:
To be clear, from the very beginning of the enforcement strategy as stated in 2010 until now there is not a total zero tolerance threshold for every single breach that arises across the whole spectrum of the regulated areas. We may take one or two of a type, where we see non-compliance in an area, as the message and we may take more. There are other regulatory tools in the escalation pyramid that are also used as enforcement to complement it. That is the general approach.
We also have supervisory warnings as an enforcement tool, which are private between the entity and the regulator. As the breaches go up the threshold the procedures become full enforcement procedures.
McGuinness said a liquidity breach that was nearly 20 times over the limit was a significant breach, pointing out that Sugarman went to the bother of walking into a Garda station to report himself and his employer of wrongdoing.
‘Nothing to see here’
“The answer from the Central Bank was that there is ‘nothing to see here, move on’,” he said.
Sibley said breaches are taken incredibly seriously, stating that since the crisis there have been more than 100 enforcement cases.
“We cannot take enforcement action on every single one. We take a proportionate approach to the breaches which are most serious and warrant public sanction and our whole supervisory framework is underpinned by that. We have teeth and we use them,” he said.
The way in which Sugarman was treated sends the “wrong signals” to those who might also want to blow the whistle on certain practices operating within the banking sector, explained McGuinness.
I do not know this individual. He had no motive other than to do the right thing. What would other whistleblowers or risk managers in the banks say when looking at the example of Mr. Sugarman who is now not employed, in extremely poor health and so on? He questions the approach of the Central Bank and cannot fathom why the issue with such a large bank that was 20 times over the limit was not addressed.
One cannot temporarily break the law
Governor Lane reiterated that it was addressed, adding that it was the bank’s conclusion that the breach was temporary and did not last longer than a day.
To that McGuinness said:
A person driving at a 100 mph, even if it was for five minutes, where the speed limit was 80 mph. That person is breaking the speed limit. If the Garda stopped him within that five minutes, he got a ticket. It goes back to the same thing as before.
In this instance, for more than five minutes, it was 20 times over the limit and nothing was done. It sends out the wrong message. It is the complete wrong message.
“Those kinds of breaches wrecked the country,” added McGuinness, adding:
If one breaks the law temporarily, one breaks the law.
“I profoundly disagree with that point,” replied the governor.
“Of course they did,” said the chairperson.
“It is not as simple as the speed limit in traffic law… Many things can happen when there is a breach but the conclusion in this case was that the breach was temporary, not systemic and not persistent, and the bank stands over that assessment,” said Lane.
McGuinness questioned Lane on why there is even banking law in the first instance. He said Sugarman read the legislation and was “so frightened” by what was happening in the bank, “not just one case one day but a number of them, that he decides to risk his job and tell the Central Bank that there is something wrong”.
He went to the Garda and said that he had broken the law and told them to arrest him. He could be imprisoned for up to five years. However, nothing happened to satisfy the fact that he had reported this wrongdoing. He lost his health and he lost his job. He did it pursuant to the obligation on him under legislation to report to the Central Bank.
If the Central Bank does not want these international banks that are here to bother looking at the law, why would we have the law?
The Governor of the Central Bank agreed that he will meet Sugarman to discuss the issue further.
With reporting by Paul O’Donoghue
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So ireland is importing millions of tonnes of soy to feed to cows to export 85% of beef and dairy produced abroad while being an overall net importer of calories and barely growing any of our own fruit and veg. Sounds a bit precarious.
@eoin fitzpatrick: zero linked up thinking.
@eoin fitzpatrick: Not true, I grew a few apples and had a great crop of rushes this year.
@eoin fitzpatrick: Lol! beautifully put. All so a handful of people can earn more profits.
@eoin fitzpatrick: there are no govt handouts for growing fruit. Farmers follow the handouts of OUR taxes to them to pollute and chop down trees.
What would happen to Irish milk production if all this imported feed wasn’t available?
If one was to believe the hype it’s all based on our “grass based system “. ….but grass alone won’t provide the nutrients that Irish cows need to produce the large volumes of milk the dairy industry requires …..this article highlights the shallowness behind the “grass based system” propaganda that the Irish public consistently hear from the dairy industry in this country…
@Padraig G: It is grass based as you call it. The bulk of what cattle eat is grass, be it fresh during the summer or preserved during the winter. But dried and fermented grass (hay and silage) during the winter does not provide everything. This is when animal feeds are used. After all, milk production runs 12 months a year, and proper fresh grass is only available for half that.
@Padraig G: BTW, I forgot to say, Maize and Barley, along with all the other cereals, are types of grass.
@Joe x: thanks for your feedback but most dairy farms I visit provide meal to their cows 12 months of the year….but your missing the point of the article, Ireland’s high intensity dairy model is totally reliant on overseas animal feed….there is no way the average dairy farm in Ireland could sustain the level of milk production we have at present on grass alone …Look at the wet summer we just had , plenty of farmers were providing meal rations to keep milk yields up ….
@Padraig G: But most of the animal feeds are grass based, which is what you were contending in the first place.
To me, the point of the article has nothing to do with what the animals are being fed anyway. By highlighting it in the title and being the first section they discussed, they turned it into a climate issue when nothing is further from the truth, especially when you look at how it is transported, as much as they can fit on one ship.
The real issue is why the farming sector has taken the route it did, which is simply down to cost. The dairy and beef sectors find it cheaper, and the tillage farmers can’t let it go any cheaper. Otherwise, none of them can make a living in modern Ireland
@Padraig G: We’re not meant to drink calves milk, we don’t have 4 stomachs.
I wonder if there is any mention in the article of the restrictions placed on beef farmers. An animal has to killed before it is 24 months otherwise there are big penalties. The beef barron and the factories have access to all the farmer data. The know how many animals are in the country and what age they are. Now if you want to have a beef animal factory fit for 24 months you have to feed grains. There is no alternative and yet farmers want the 24 month rule lifted and its not. It was bought in during the BSE scare back in the 2000s. The rule makes the factories richer and bad for the environment because we have to import feed. What is the difference between 24month and 34 month beef. There is no difference. Beef in Ireland is a monopoly. The same animal in the UK makes €400 per head more than in Ireland. Our farmers are being robbed by the processors and the only profitable sector left is milk.
@Washpenrebel: my point is that its not financially possible to finish our beef of just a grass based diet because the rules in place. Man made rules that are worse for the environment.
Funny how the first thing they concentrated on was the carbon footprint of importing the feed instead of asking why so much is being imported and not grown locally. Stating that it could be grown at home is stating the obvious, after all cereals have been grown on this island for hundreds, if not thousands, of years. The problem is cost for both dairy farmers to buy it local as it is cheaper to buy it in, so that they can have a living wage and tillage farmers to sell it local as animal feed as they cannot afford to sell it any cheaper, otherwise they will not have a living wage either. It’s the cost of things in this country that affect everything else as usual. .
Give the farmers a break and treat them as if they were Data centers or even better the Aviation industry whose emissions are also overlooked as they are not considered in our national emissions targets.
@john dennehy: Are you actually admitting that farming is causing serious issues for the planet. WoW!! The I.F.A. will love you for that!
Great article and FOI providing a great service to inform the public to make their choices. Our dairy cows are fed too much imported meal despite not yielding very much. Denmark produces 2/3 as much milk with 0.5m cows as we do with 1.7m cows. The answer is obvious.
@john mounsey: do you know that Ireland is one of if not the best place for milk in the world. We have some of the toughest restrictions in place which is why we produce a huge amount of the world’s baby milk. Grass is key to top quality milk and we grow grass better than anywhere else in the world. Its something we should be proud of but we have a group of people that love hammering farmers who work on average 14 to 18 hours a day.
@Washpenrebel: Our infant formula exports are dropping, was 620m euros to China in 2017, dropped to 266m last year. Hence poor milk proce for dairy farmers here.
@john mounsey: Dairy farmers all over the world are suffering because of the prices. There are many farmers in the leaving because its not paying enough. Same in Australia. Governments all over the world are making it harder for farmers and there will be a food shortage in the future. This is guaranteed. We live in the age of the internet and we can see what’s happening in other countries
@Washpenrebel: Its not the ‘player’ it’s the game.
Humanity, for what it is worth, is foolish in a particular way.
Climate is far too technical for most people, so retreating to the Earth science of biology is perhaps the best course to undo considerable damage to research by scientific method modelling.
Origin of Species attempted to use prejudice as a means to control perspectives of humans and who constitutes the title of superior and inferior ‘races’.
Just like carbon footprint, carbon emissions or some other buzzwords, natural selection/eugenics was once a major topic in society and found its full implementation in WWII as the Holocaust.
People are so distracted with the symptoms of modelling that they hardly are aware that scientific method modelling is the only issue.
So people with stature to deal with a serious topic just do not exist, and that is no insult but stated with deep dismay.
People want to consume dairy products and Ireland is one of the most climate friendly countries in the world to do this.
It is nonsense to say by supposed academic leaders that we should participate in solving this global problem by exporting dairy production to much less climate efficient countries.
The media climate B/S never ends,
Lovely emissions heavy feed, the best kind of feed
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