Irish arrests

Fraud detectives have arrested Anglo Irish Bank's former finance director on suspicion of aiding the cover-up of massive losses at the debt-crippled Dublin lender.

William McAteer, who resigned 14 months ago amid the bank's imminent nationalization, became the second former executive to be arrested in a year-old fraud probe into Anglo, the bank worst hit by Ireland's sharp slide into recession.

Last week, fraud detectives arrested the bank's former chief executive and chairman, Sean FitzPatrick, but released him without charge pending further investigations into the dealings of Anglo's so-called "golden circle" of favored investors.

Calling the bankers to account

Since the onset of severe economic difficulties 18 months ago the Irish government has taken various controversial decisions. It has rescued insolvent banks, and has created an agency to buy impaired loans from those banks. These moves are not universally popular because they involve unimaginable amounts of borrowed money.

But a decision to launch an inquiry into the banking system has received a broad welcome. The inquiry's findings will shape "the future of the industry and the future of the Irish economy" according to Larry Broderick, the General Secretary of IBOA, the Irish Bank Officials Association.

The IBOA has long been a consistent critic of irresponsible lending. "One of the most profitable banking systems in Europe is now in a dismal state," Broderick told Deutsche Welle. He wants to know why the industry threw what he calls "traditional banking values out of the window" and accuses it of placing shareholders and profits before staff and customers.

"So many things went wrong that it's hard to count them," said Joan Burton, spokesperson on finance for the opposition Labour Party. She wants the inquiry to address the culture of self-deception in the financial institutions.

During the boom years of the early 2000s the parliamentary finance committee, of which she has been a member for seven years, questioned bank chief executives, the financial regulator, and even the governor of the Central Bank: "All they kept telling us, right up to the moment of the crash, is 'our banking system is very good, we are stress-testing it, the stress-testing is telling us that the system is strong and reliable' and then it all collapsed overnight."

Then came what Burton calls the 'credit famine'. As the banks seek to recapitalize themselves they have restricted their lending, putting pressure on small businesses, which rely on ready access to credit.

Citing research by his organization Mark Fielding, chief executive of ISME, the Irish Small and Medium Enterprises Association, claimed that lack of credit has destroyed thousands of small businesses since the economy began to falter in mid-2008.

"55 percent of businesspeople who have approached their banks looking for extensions to their overdrafts or term loans have been refused... at the best of times in Ireland the refusal rate would be about 20 percent," Fielding said.

An additional difficulty for small businesses is that customers are taking longer than before - an average of 75 days - to settle their bills.

"They're left without any means of support," Fielding said, adding that the owners of small businesses that go under are not automatically entitled to unemployment benefit. "The people who have actually created the wealth over the last number of years are now left without any state support."

Bringing order to the 'Wild West'

Fielding supports the inquiry, believing that it will teach valuable lessons and help restore the country's shattered reputation for financial probity. This has worsened since 2005 the New York Times dubbed Ireland 'Europe's Wild West' in reference to its lightly-regulated business culture.

Others believe that the inquiry, which will do much of its work in private, will be of limited usefulness. Sean FitzPatrick and other fallen bankers thrived during the boom, an age of 'crony capitalism', according to Burton. They were part of a 'golden circle' of bankers, politicians and developers' she said. She would prefer an open parliamentary investigation into the 'golden circle' and direct questioning of the bankers. But such a process is legally and constitutionally difficult in Ireland.

She claimed that the nature of the inquiry suits the government. Brian Lucey, an associate professor of finance at Dublin's Trinity College, agreed. "The inquiry has been very deliberately structured by the government to prevent in effect an investigation into the political decisions taken in relation to th e country's banks," he said.

Referring to the blanket guarantee given the banks on 29 September 2008 he claimed that "18 months on we are still no clearer why some banks weren't allowed to go to the wall. And I've always thought that capitalism without failure is like religion without sin".

Joan Burton believes that date is significant: it was the day before Anglo-Irish, 'a lead actor in the destruction of Irish banking' published its year-end figures.

"The banks in effect have got away with it," Lucey added, arguing that the blanket guarantee makes it difficult to reform or restructure them. Any recommendations the inquiry makes may prove difficult for the government to effect, he believes.

Author: Peter Hegarty
Editor: Sam Edmonds