Minister picks knight to lead bank rescue mission

A Bank of England veteran who is also a knight has been recruited by Irish finance minister Brian Lenihan to help find a professional who can rebuild confidence in the country\'s battered financial system.

Sir Andrew Large, former deputy governor of the Bank, has been asked to advise on the selection of a regulator of international standing to head a proposed re-vamped supervisory regime.

In presenting an emergency Budget – his second in six months – the minister offered few details on the proposed regulatory system apart from saying that it would involve what he called wide-reaching structural changes complemented by significant resources and additional expert staff.

The changes come after a series of banking scandals that have threatened the Irish economy and seen top-level resignations at Anglo Irish Bank and Irish Life & Permanent, as well as the early departure of the previous financial regulator.

Sir Andrew’s experience is regarded as a key factor in finding a suitable candidate to rebuild the system. In the 1990s he attracted plaudits in his role as chairman of the Securities and Investments Board, the predecessor of the Financial Services Authority.

He later became deputy chairman of Barclays before moving to Brussels where, as chairman of Euroclear, he was credited with modernising clearing and settlement across Europe.

The most controversial element of Lenihan’s Budget was not the recruitment of Sir Andrew but the announcement that up to 90bn in bad property loans is to be transferred from Irish banks to a government-run National Asset Man- agement Agency.

According to the minister, the removal of risky loans from banks’ balance sheets will allow them to resume normal lending.

But opposition parties claim the proposal amounts to a taxpayer rescue for property developers who behaved irresponsibly in taking out huge loans they could not repay, as well as a bailout for banks that were equally irresponsible in sanctioning such borrowings.

A third of the loans to be transferred relate to properties outside the Republic, mainly in London, Northern Ireland, New York and eastern Europe.

Lenihan insists that this a rescue deal for the Irish economy, not for banks or developers. He maintains that the state will pay banks less than book value and recover its money by selling assets as the market improves.

If there is a shortfall, Lenihan says the government will impose a levy on banks.

It will also require developers to meet repayments on the loans they have taken out, seizing personal assets if necessary.