Banks have yet to heal the €60bn bailout wounds of a decade ago
A decade after a €60bn taxpayer bailout of the country’s main banks, we still have a problem with trust when it comes to how they operate in good times and in bad.
The tracker mortgage scandal, (which still rumbles on with the discovery of another 1,100 customers over-charged on mortgages at AIB), was supposed to be a watershed moment in a new relationship between the banks, their customers, regulators and government.
The latest flashpoint has been the application of accrued interest on mortgages and other loans that avail of payment breaks due to the coronavirus crisis.
At a meeting in May between the bank CEOs, industry representatives, the Taoiseach, two ministers and officials from their departments, the bankers said they had to charge accrued interest on these mortgage breaks to avoid loans being re-classified on their balance sheets.
The application of the payment breaks was, they said, in line with European Banking Authority guidelines. And it was. The bigger question was whether they could have foregone charging accrued interest without creating fresh problems. It later emerged they could have.
There has been disagreement between the bankers and the Central Bank of Ireland about the interpretation of the guidelines, which bankers say were only clarified much later. They didn’t lie or mislead but acted in good faith, they say.
However, Tánaiste Leo Varadkar threw a grenade into proceedings at the weekend when he told me on The Business on RTÉ Radio One that he didn’t fully trust bankers.
“When you tend to meet them, banks like to talk you down with regulatory gobbledygook, unfortunately my assumption in dealing with them is that I don’t fully trust what they say until it is demonstrated otherwise.”
This didn’t appear to tally with his comments earlier in the week under questioning from Sinn Féin’s Pearse Doherty who suggested that Mr Varadkar had been naive in accepting what the bankers told him at the meeting. Mr Varadkar denied the suggestion.
Suddenly, the Tánaiste sounded like he was questioning if he had been sold a pup himself by the banks.
Whether you accept the bone fides of what the banks said that day or not, there is a bigger issue at play here. There clearly cannot be trust between banks, their customers, regulators and government, where the second most senior politician in the country says he doesn’t fully trust them.
One of the measures to flow from the €1bn tracker mortgage scandal was the establishment of a new Irish Banking Culture Board. It is basically a body funded by banks, but independently run to improve the culture of the behaviour within the industry.
On its website is a section called ‘Respect and Transparent Communications’ where it says it wants to develop initiatives to address key requirements around communication with customers. “This includes communication standards, use of straightforward language, removal of jargon and technical descriptions.”
Compare this with Leo Varadkar’s comments about “gobbledygook”.
Either Mr Varadkar is using the banks as a political football – an easy mark for a good kicking – or the entire question of trust in the banking sector has not progressed one inch.
Privately senior bankers are furious at the suggestion that they deliberately misled the government at that meeting and are adamant that they communicated their honest understanding of rules, which had yet to be clarified fully at that stage.
A close look at the EBA guidelines of the time, does appear to leave room for interpretation until such time as they were clarified subsequent to the meeting.
However, if there was any doubt whatsoever about the interpretation of the rules, it should have been clarified for the banks by the Central Bank of Ireland as quickly as possible.
Despite the regulatory clarification the banks have said they will continue to charge accrued interest anyway.
Whatever about them acting in unison on regulatory matters it is now up to individual banks to make their own commercial and customer decisions about what they do from here on with mortgage break customers. Yet, so far, all of the banks involved are sticking to the same approach on this issue.
Meanwhile, the industry remains under pressure and is expected to record significant losses this year. Share prices of quoted banks continue to languish. Fintech and payment companies are eating the bankers’ lunch.
Mortgages and SME lending have become major pillars of the profitability of our indigenous banks.
The senior executives have all changed but the industry still has a way to go to heal the €60bn bailout wounds.
News by independent.ie, edited by Dowling Financial.
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