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Getting to grips with the ‘unholy trinity’ of banking

Elderfield: fresh in from Bermuda, Ireland’s new financial regulator says he will tackle the banking system’s unholy trinity of bad rules, bad behaviour and bad attitude

Matthew Elderfield experienced a sharp drop in temperature when he recently moved from sunny Bermuda to the uncertain climate of the Irish Republic to become the country’s financial regulator.

Now it is the Republic’s banks that are feeling the chill as Elderfield sets about tackling what he calls the system’s unholy trinity of bad rules, bad behaviour and bad attitude.

Elderfield says his predecessor was seriously understaffed and he will be recruiting 350 employees, with banks paying the cost of increased scrutiny.

He says: “The cost of regulation will increase. But judged in the context of the huge cost of a financial crisis this must be seen as a price worthpaying.”

For Irish taxpayers the cost so far has been a €440bn guarantee for bank debts and deposits plus a pay-out of billions more to cover the cost of bank recapitalisation.

Leeds-born Elderfield, who worked at the UK Financial Services Authority before moving to Bermuda as financial regulator, offers a blunt analysis of the reasons for the Irish banking crash.

He says: “Despite the international financial crisis the primary cause was home grown, with too much lending creating an unsustainable construction boom.”

Some loans also went to the directors, managers and prominent shareholders of banks and building societies, with many millions remaining unpaid. The regulator is proposing stringent rules to force all financial institutions to report full details of such loans and ensure they are not given on favourable terms.

Elderfield says: “These loans were subject to abuse and excess, if not outright subterfuge.” And without naming names, he refers to “one notorious case that involved large sums and was apparently designed to avoid detection”.

That case involved Sean FitzPatrick, former chairman of now-nationalised Anglo Irish Bank, who hid loans of up to €122m until his resignation in 2008.
He subsequently admitted that he had concealed the loans for eight years by transferring them to Irish Nationwide Building Society each year prior to the publication of the lender’s annual accounts.

By the end of last year FitzPatrick, who is being investigated by Ireland’s fraud squad, still owed €85m and the bank says it expects that €68m of this will not be repaid.

Elderfield is planning a system of checks and balances to prevent what he calls overdominant chief executives taking control.

He adds: “We want fitness and probity standards to prevent some of those people getting into the system, and to kick other people out.”



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