Shareholders who lost their life savings in the Irish banking collapse should shoulder blame for their own financial ruin, the country’s Central Bank said.
Tom O’Connell, assistant director general of the Central Bank and Financial Services Authority of Ireland, claimed investors got what was coming to them for not keeping bank chiefs in check.
The senior figure in Ireland’s banking watchdog admitted it did not shout loud enough about reckless lending to property developers during the bubble, but insisted ordinary shareholders were also responsible.
“If the banks don’t reform adequately, it’s the shareholders who should be there to discipline them,” he said.
“If they don’t do that, they take a hit, and they have taken a massive hit here.”
Mr O’Connell told a parliamentary committee the Central Bank was aware at the time of the risky behaviour of Irish banks that would later plunge the country into turmoil.
But he claimed it was not the job of a banking regulator to prevent banks who made bad decisions from going to the wall.
“No regulatory system can or should ensure that all banks should survive,” he said.
“Banks that make bad decisions should pay the penalty and that’s what they’ve done.
“Despite the fact the media say the banks are being bailed out, the banks are not being bailed out. The banks’ shareholders have lost their shirt. Anglo-Irish (Bank) shareholders hold nothing, the other banks have lost 90 per cent of what they had and that’s the way it should be.”
Mr O’Connell also argued the Central Bank did not have the power to “contain the exuberant behaviour of the banks”.
The setting up of the State’s “bad bank”, the National Asset Management Agency (Nama), should put Irish banks back on course to business as usual, he said.
Nama is expected to be established later this year, and will buy toxic loans, mainly for developments that collapsed in the property crash, from the country’s main banks.