Thursday, 22 February 2001
Committee of Public Accounts DebatePage of 5
Chairman: You are welcome, as is Mr. Doyle from the Department of Finance. Witnesses should be aware that they do not enjoy absolute privilege and should be apprised as follows. Since 2 August 1998 section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, grants certain rights to persons identified in the course of the committee’s proceedings. These include the right to give evidence, the right to produce documents for or send documents to the committee, the right to appear before the committee either in person or through a representative, the right to make a written and oral submission, the right to request the committee to direct the attendance of witnesses and the production of documents, and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. I ask the Comptroller and Auditor General to introduce his report.
Mr. Purcell: The report before the committee this morning records the findings of an examination carried out by my staff into the way in which the Central Bank carries out its financial regulation role and how the bank assesses its effectiveness in this regard. The ambit of financial regulation by the bank covers credit institutions, that is, banks and building societies, and investment institutions, such as IFSC companies and investment intermediaries. Since 1995 the bank also has a role in countering money laundering in its supervision of credit and investment institutions. A number of financial institutions and agents are not regulated by the bank, such as insurance companies and credit unions, but the Government’s intention, expressed earlier this week, envisages revised arrangements under the control of a new single authority. My audit reviewed the bank’s regulatory function as it applied in 1999. It did not cover any perceived gaps in procedures which may have existed prior to that date but which had since been remedied.
The system of financial regulation operated by the Central Bank in recent years is sound in that it conforms in all material respects to the international norms laid down for the sector. Independent reviews by the likes of the IMF have concluded that the bank is discharging its regulatory function to a high standard. The findings of the report have to be read in that context and the recommendations should be viewed as referring to desirable refinements to an already sophisticated system rather than to any intrinsic shortcomings in the system, and that was certainly the case when we reviewed it in 1999.
I am glad to be able to relate to the committee that, since the date of my report, the Central Bank has taken on the thrust of the recommendations in a way which addresses concerns that might be implicit. Specifically, a financial supervision policy committee has been formed, the timeliness of processing of prudential data is regularly monitored and a risk rating system, which we recommended, has been introduced to better focus inspection work. The report’s suggestion that external auditors should be required to make an annual positive statement to the Central Bank about financial institutions’ compliance and propriety, which was reiterated recently by the review group on auditing, has been endorsed by the bank which is in discussions on this matter with the Department of Finance and the accounting profession.
On the money laundering side, the bank places more emphasis on checking that procedures in place in financial institutions are being operated and last year it conducted a number of on-site inspections, focusing specifically on adherence to anti-money laundering procedures. At a higher level, a sub-group has been set up to examine specific areas of policy and I understand that it will also address issues of effectiveness as outlined in the report as they relate to the anti-money laundering activity.
At this stage the bank has developed a single document which brings together the work of the various areas of the bank in relation to financial stability as suggested in the report and has set up a high level co-ordination committee and a working group on financial stability. These moves should consolidate the effectiveness of the bank’s financial stability assessment programme. All in all, the bank’s positive response to the report and other developing issues is reassuring and I believe that the current supervision regime should form a sound basis for the work of the new authority.
Mr. O’Connell: I have circulated a written statement and I will give a shortened version of that. We welcome the value for money report on financial regulation. We were pleased to give the fullest co-operation to the Comptroller and Auditor General. This report was published a year ago and the focus has been entirely on prudential supervision. It also covers arrangements for risk in the overall financial system and money laundering. It is a very useful and concise description of our functions in relation to prudential supervision. We now regulate about 1,000 financial entities. These range from very large banks to smaller investment intermediaries. We also have 2,500 collective investment schemes and on 1 April we take over responsibility for insurance intermediaries.
Supervision is a complex subject and falls under a number of headings. First, we have to authorise new entities that are setting up business here. Then we have ongoing supervision on a regular basis. We do this in a variety of ways. We have regular analysis of data. We examine various proposals that come to us. We have very regular review meetings and we have inspections. As the Comptroller and Auditor General has pointed out, we have set up, in response to his report, a high level internal committee which co-ordinates all these activities within the bank.
The report is very positive. It made a number of useful recommendations and we have had no hesitation in taking these on board. It recommended a risk rating system and we are scoring institutions depending on the level of risk. This requires some fine-tuning but we have it up and running. On the issue of financial stability, the report recommended a better co-ordination of information from various sources and, as I have said, we have done that. The report also pointed out that the number of inspections that were undertaken by the bank in the year in question was falling short of targets, and we acknowledge that. I think we have improved on that very much in the past year.
As I said, the report came out last year and since then there has been a number of substantial developments, such as new codes of conduct, and new questionnaires to assess the probity and competence of senior personnel have been introduced by the banks. We have greatly improved our contacts with external auditors and we are at present providing assistance to the accounting profession in drafting a new practice note which will spell out the relationship between the external auditor and the Central Bank. The thrust of what we are doing in that area is towards ensuring that directors, senior management, auditors and so on are much more aware of their responsibilities than heretofore. In addition, the Central Bank has reviewed the corporate governance structures of banks to ensure they conform to the best international standards.
All these recent changes generally arise from the DIRT inquiry. As they have been documented for the committee, I do not need to repeat them in detail. However, I would like to draw members’ attention to one or two important features. I said that we had new questionnaires and codes of conduct. These relate to issues of integrity of personnel and the need for transparency. These are the essential issues. There is a requirement that the board of every institution must confirm to the Central Bank on an annual basis that the institute is fully compliant with legal obligations, including tax obligations.
A key concern currently is the growth in credit. This is an issue of monetary policy and the stability of the whole financial system because private sector credit has been growing consistently for a number of years at a rate in excess of 20%. That is unprecedented by our standards. One could compare it with a figure that is slightly less than 10% for the euro area as a whole. The Central Bank does not have independent monetary instruments anymore to deal with these issues. There is no question of doing what we did in the past such as imposing ceilings. The best we can do is keep on monitoring and advising. We do that all the time in a variety of ways. In the past two years, we have introduced stress testing exercises and so on. We are actively examining providing for bad debts. We strictly enforce standards in capital adequacy and we carry out inspections on a regular basis. However, at the end of the day, credit is growing at a rate which gives us cause for concern.
We have said consistently that we believe the functions of monetary policy and the supervision of financial institutions should be united in one organisation. For that reason, we welcome the Government decision some days ago to locate the single regulatory authority within the bank. Whatever arrangements are put in place, the Central Bank cannot offload its responsibility for stability of the financial system. We must retain that. We must also be ready at all times to act as lender of last resort. For that reason, we must be adequately informed about what is happening in the financial world at all times.
I have said this consistently that the Central Bank recognises the need for stronger legislative measures to protect the interests of consumers vis-à-vis financial institutions. There are gaps in the system which have been identified by this committee. One obvious issue is that there is no single point of contact up to now for the consumer in relation to the financial services industry. We submitted to the McDowell committee a blueprint for stronger consumer protection. I am pleased this has been echoed in the recent Government decision.
Another issue that arose in the context of the DIRT inquiry is the relationship, or rather lack of relationship, between the Central Bank and the Revenue authorities. Deputies will be aware that there is statutory prohibition on communication between our two organisations. The rule as it stands is very inflexible. Your sub-committee on DIRT matters recommended the possibility of a legal amendment to allow for some exchanges of information to be explored. I am pleased this has been done under the aegis of the Department of Finance and the Central Bank is co-operating in this exercise.
In any assessment of the evolving situation in this country, what is happening internationally should be borne in mind. There is increased globalisation of financial services. There is a general acceptance in the international community that the old rules of supervision must be upgraded in light of developments, that there must be a greater effort than heretofore in relation to transparency and uniformity across the globe. Changes are being considered at a very high level and whatever changes take place will affect us here.
Chairman: In relation to the new arrangements, good sense has prevailed in that there will be one organisation which must be the Central Bank. That has been obvious for some time. Is Mr. O’Connell satisfied that the format proposed by the Government is not too cumbersome or awkward?
Mr. O’Connell: I said in my opening statement that I welcome the Government decision to locate the regulatory authority in the Central Bank. I have said consistently that there are decided advantages in this. I am pleased the decision has been made because there has been uncertainty for too long. The challenge is to implement the arrangements that have been announced by Government. It is very difficult prior to legislation to say how best to do things. It is very difficult to be precise. I expect the legislation will identify clear lines of responsibility and control. In advance of a general statement of intent and policy, it is difficult to say how precisely the three different structures in the model will work in practice. However, I am sure the legislation will spell this out in detail.
Chairman: On the DIRT inquiry and the follow-up to that, you believe categorically that the bank’s role was prudential and that it did not have a role in relation to advocacy or observing legislation. Have you changed your mind about that?
Mr. O’Connell: I mentioned in my opening statement that the relationship, or rather non-relationship, between the Central Bank and Revenue is probably inadequate in this day and age. We are doing something positive in terms of trying to change that. We are exploring the possibility of having some communication which I believe is the most positive way forward. At the end of the day, these problems must concern all of us.
Mr. O’Connell: I do not want to jump ahead of the committee which is considering this matter. I have agreed that the Chairman of the Revenue Commissioners and I will have a formal meeting on a six monthly basis. That is how far we have gone. Let us wait for the recommendations of the committee which is considering this under the aegis of the Department of Finance. I do not want to anticipate what it might recommend. There are problems which are not of our creation. There are legal problems we inherited from the European Union and which we must translate into our law. It is clear there cannot be total interaction between ourselves and the Revenue Commissioners.
Ms O’Dea: It is correct that there is interaction between ourselves and the Garda authorities. The European directive makes it clear that that is allowed under the money laundering legislation. It is much less clear what interaction is allowed between Revenue so that is precisely the issue that is being explored. We have talked to other European countries on whether they pass information to the Revenue and how they go about doing it. The group will be looking specifically at any angle that can be used within the legal structure to pass relevant information to and from Revenue.
Chairman: The committee’s view on that issue should be sought. We could have an input into the new arrangements because we have an acute interest in the matter. The point has been made by some commentators on the reaction to the Government announcement this week that the culture in the Central Bank is wrong and that even relocation of the bank should be contemplated. What is your reaction to this?
Mr. O’Connell: I entirely disagree with that. I said earlier in relation to consumer legislation and so on that we have led the field. We put proposals to the McDowell committee two years ago and I am not aware anyone else has done likewise. We are hemmed in because we do not have the authority in relation to consumer affairs, and we never had.
Chairman: I want to be clear on one aspect because it has been a point of difference between you and me for some time. Do you see the question of tax evasion or facilitating tax evasion either by deed or omission on the part of the banks as something with which the Central Bank should concern itself?
Chairman: What about the suitability of people who have overseen, say, DIRT evasion, for directorships of banks? Is there any new consideration by the Central Bank as to the appropriateness of certain appointments?
Mr. O’Connell: We have produced an elaborate questionnaire in the past 12 months and we insist on it being completed in relation to any changes in senior personnel or directorships. At the end of the day it is very difficult to veto anybody unless you have evidence of a criminal offence or something like that. You can advise and make a comment but we do not have authority to say you cannot put Mr. X and Mr. Y on the board unless there is clear evidence of a criminal conviction.
Chairman: Let us assume that criminal acts are not involved but there is carelessness, indifference or apathy, which were factors in DIRT evasion. Would the Central Bank pursue these factors in vetting appointments to the boards of banks?
Ms O’Dea: There are new procedures which have been introduced since the DIRT inquiry. We have written to all the institutions specifically about the DIRT issues and gone through the new procedures with them and how they have amended them. We have also introduced an annual statement of compliance with all laws. That includes tax and company law and areas which are not specifically within our remit. We want to make sure that the institution complies with other laws as well.
Ms O’Dea: This is effectively in the hands of the audit bodies. They produce the practice note but we have given them assistance and advice in relation to the note. I presume the new oversight board will be interested in this as well.
Deputy C. Lenihan: Following on from the points made by the Chairman, clearly you cannot veto a director unless there is proof of an offence. Presumably like the security and exchange commission in the United States, an executive who was responsible for a hedge fund or a derivative instrument going utterly wrong and who caused a systemic problem within the financial system because of the risks taken would not be eligible subsequently for appointment to a major bank or financial institution with major financial risk responsibility. I presume this sort of issue is covered in the questionnaire.
Ms O’Dea: There is an exchange of names at European level where dubious names are exchanged between regulators on a confidential basis. In the case of a person who has been involved in an investigation in the past we would obviously pursue this and talk to the regulatory authorities. Ultimately, we can, within legal constraints, veto the person and not approve the appointment. Clearly if there is a criminal conviction our legal advice is always to veto the appointment.
Deputy C. Lenihan: I will give a practical example. During the 1980s the AIB had to be bailed out of losses it incurred in relation to its involvement in the London insurance market. Even though no criminal offence occurred the State had to enter into a significant bail-out - whether that is right or wrong is another matter——
Deputy C. Lenihan: Yes, but presumably the persons associated with the bad risks would not be suitable persons under your new guidelines or European directives and you would be able to blacklist them from a senior appointment within the financial industry.
Chairman: I do not think that the problem in regard to DIRT was due to dubious people being on the board of any of the financial institutions. Rather they were lazy people on a gravy train who were taking the fees but not doing the job. Is the Central Bank looking at people who take the fee and do not do the job? Are there rules and regulations which are pursued to see whether non-executive directors in particular are doing their job?
Mr. O’Connell: There are failures in the financial system. As we well know, they are a part of the system. It is difficult to attribute blame or negligence and one has to be very careful. People set out with the best of intentions to make new financial schemes and new financial engineering work but sometimes they fail. We have seen this happen. It is also happening in the “dot com” area. You cannot conclude from this that the people were inefficient or negligent. It is extremely difficult.
Chairman: The lack of knowledge, action and activity by directors was appalling. They are all still there and there are no penalties. We can do nothing much about that but we can ensure that it does not happen again. We are depending on the Central Bank to ensure that it does not happen again.
Mr. O’Connell: There have been dramatic changes in the systems. I could go back to 1995 and the money laundering legislation, which has changed the scene in terms of reporting etc. There are also the changes made in the past year, to which we referred earlier, following the DIRT inquiry. The whole scene has changed and we have to give it a chance.
Deputy C. Lenihan: It is difficult to be retrospective in terms of new guidelines. However, if those guidelines were applied now would the senior executives who failed in their supervisory role in relation to the ICI business during the 1980s be allowed to take up senior appointments within the financial system? This is a much bigger prudential systemic challenge. The biggest historic systemic crisis in the system was the ICI and the bail-out of the AIB in the case. Would the AIB directors, be they executive, senior or otherwise, responsible for allowing the subsidiary in London to rack up those enormous losses be allowed to act as directors under the new system?
Mr. O’Connell: As you will appreciate, I find it difficult to talk about an individual case. They went into a new business and acted with due diligence. One must accept that they went into the business after carrying out all the normal tests and so on. I do not think you can attribute negligence in a situation like that as things went wrong. Where and why they went wrong is another matter.
Ms O’Dea: It is correct to say that they are issues which would be investigated. In so far as the questionnaire is filled out, we check it with other regulators. If somebody has been involved in any way with a financial disaster or bankruptcy somewhere else that would certainly be investigated and the person’s role within that would be investigated. If he was found to have primary responsibility he would not be approved.
Deputy C. Lenihan: That is the point I was trying to get at. How does the Governor rate the stability and efficacy of the Irish financial sector in European terms, notwithstanding the revelations of the DIRT inquiry?
Mr. O’Connell: We have an extremely good record and have had very few failures over the past 20 or 30 years. In my written statement I referred to the fact that the IMF sent a team here since the Comptroller and Auditor General was with us. It carried out a thorough examination and was impressed with the overall stability of our financial system and the way it is regulated. One cannot be sure. Things could go wrong in the next half an hour, but we stand on our good record.
Mr. O’Connell: I would expect credit to grow faster here than in the rest of Europe because our economy is growing faster. That is the explanation for it. This has been happening at an extraordinary rate for four or five years. We have moved from a low position to the European average. We borrow as much as the rest of Europe. The logic is that if this continues we will be at the head. A central bank has to be concerned about this and has to keep a watch on it. It must talk to the financial institutions. It also has to realise that where the economy is growing like this, more must be provided for the proverbial rainy day.
Mr. O’Connell: The banks need to be as interested in this as we are because they are in the front line. On the other hand, banks fight for an increase in market share. It is a matter of getting the balance right.
Mr. O’Connell: Obviously, undermining the euro supersedes everything. We cannot have the euro undermined. How do we decide that it is under threat by a member state? It is difficult to say in advance what the effect will be. The European Central Bank takes a general interest in the budget policies of member states.
Deputy C. Lenihan: It is relevant in relation to the other issue. Considering systemic crises in other countries, like the savings and loan episode in the United States, could something like that happen here?
Mr. O’Connell: Anything is possible but it is highly unlikely. No one can give a 100% guarantee. Our record, the manner in which things are managed and the spread across institutions, is good. We are in the unusual situation where the economy is bouncing ahead. A slow-down is inevitable.
Mr. O’Connell: This is a European Central Bank issue rather than a national bank one. No central bank can show its hand since that would tell the financial institutions the arrangements. That defeats the purpose of——
Deputy C. Lenihan: Are you worried that, due to deregulation of European markets and consolidation within the banking industry internationally, in future there may not be an Irish owned bank? If the Irish banking sector is absorbed internationally, will you not lose control because there will be no bank’s headquarters here?
Ms O’Dea: It depends where the headquarters are situated - for example, if they are situated in the UK, the British authorities would be the lead regulator. We would be responsible for subsidiaries here. Banks operating here, Irish and others, have subsidiaries and associates internationally. Regulation involves contact with other regulators. The two largest Irish banks cannot be regulated on a domestic basis because they have a presence elsewhere. If there were a banking collapse, there are strict rules on bailing out, regarding whether the bank was solvent.
Deputy C. Lenihan: Would your power to bail out financial institutions not be reduced if there were no headquarters in Ireland? On occasions when there has been a liquidity crisis because of derivative or hedge funds going west, Mr. Greenspan has had the power to persuade large American owned headquartered financial institutions to co-ordinate an industry wide, not a taxpayer, initiative to bail out troubled funds or troubled institutions. Would your power to do the same not be reduced if no Irish owned bank were headquartered in Ireland? All the banks are owned by large multinationals. Would your power not be reduced automatically?
Mr. O’Connell: The scene is changing very rapidly. We are moving slowly but surely in the direction of Pan European banks. The feeling exists - hopefully it will never happen - that a collapse in the future will be a European event——
Mr. O’Connell: The source of these deposits is Irish residents, those returning from abroad and foreign nationals working here, Irish expatriates and overseas people who have nothing to do with Ireland. The deposits would break down into those three categories.
Ms O’Dea: The arrangement we have with the Isle of Man is because they are subsidiary entities in the Isle of Man, they are under the legal responsibility of the Isle of Man authorities. They have similar responsibilities to ourselves in terms of money laundering - including tax evasion - which is an offence in the Isle of Man. That includes evasion of Irish tax laws as well as Isle of Man tax money. Their regulators carry out regular checks and we receive reports. We meet with the regulators to discuss various issues, one of which is compliance with money laundering legislation. We have very close contact with the Isle of Man regulators.
Ms O’Dea: We have raised this with the Isle of Man authorities and we receive detailed reports from them on compliance with their provisions, which are similar to our Criminal Justice Act, and under which there are very heavy penalties associated with tax evasion.
Chairman: I know, but has anyone ever been pursued or has any penalty ever been imposed? I get the distinct impression that this is another area where the Central Bank is not as active as it might be.
Chairman: I know but look at all the reports. There have been daily reports from the tribunals in the past few years about overseas accounts, Isle of Man accounts and Channel Island accounts. It does not take a genius to suspect that there is large scale tax evasion going on. What is the role of the Central Bank in trying to stop this?
Chairman: I am not happy about this. We have had the KPMG report of funds in the Isle of Man, and apparently the bank was surprised we had that report. It shows that the scale of Irish funds there is disproportionate, to say the least. I am gravely concerned about tax evasion, that some of our banks may be facilitating or colluding in it and that the Central Bank is not doing enough to stop it.
Mr. O’Connell: I would be astounded if, after all we have been through, there are Irish banks which are colluding in breaking the law. I sincerely hope not and would be very angry about it because they know the rules at this stage. There is an awful lot of legitimate money in the Isle of Man and it is there particularly in relation to expatriates and so on——
Mr. O’Connell: Yes, but we cannot stop them taking deposits in the Isle of Man. They have to compete with everybody else. Banks are doing it from other places, the Channel Islands, the Isle of Man or wherever. I see where you are coming from but it is very difficult——
Deputy Durkan: I have a question in relation to the reply to Deputy Lenihan’s question regarding the Central Bank’s ability to intervene in the growing scale of operations on a Europe wide basis. My understanding is that each Central Bank still has a role, as it had in the past, multiplied by 15, the 15 member states, and controlled and overseen by the European Central Bank. The role and functions of that bank are equal to the role and function applied by each Central Bank previously. Any failure that shows up in that area would have serious consequences for the whole financial services and the structure on which the European economies are based unless that is understood.
Mr. O’Connell: This issue is beginning to come alive now. The Lamfalussy report which is going before the Stockholm summit is opening up the whole issue. We have to have co-ordinated European financial markets and are slowly but surely edging in that direction. That will call for supervision regulations at the European level.
Deputy Durkan: Absolutely, because the understanding on which the European Central Bank is based is clear about what it is intended to do. It is a multiplication by 15, as it stands now, of those responsibilities which were previously solely in the hands of the individual member states’ Central Banks. If that does not happen the whole financial system will quickly collapse. My understanding of the European legislation that set it up in the first instance is that it is co-ordinated in that fashion. If it is not then serious gaps will very quickly show up in the whole system.
I want to mention something about money laundering. This was covered in a report mentioned previously on procedures to counter money laundering. Prior to the setting up of the CAB, to what extent was the Central Bank aware of money laundering in this country with particular reference to drug associated moneys?
Mr. O’Connell: The Central Bank would not have the same awareness as individual banks. We have all been obligated since 1995 to report suspicions to the gardaí of any form of money laundering. I can tell you without going into detail that we have, and I know other individual banks have also done so.
Deputy Durkan: Would the Central Bank have been aware of the escalating levels of money laundering in the late 1970s and all through the 1980s particularly money laundering associated with the drug business?
Deputy Durkan: European Union legislation and the Amsterdam Treaty in particular cater for European aspects of the drug issue and its association with money laundering. That whole area is now in focus. Can you indicate the extent to which the Central Bank is associated with the international scene in Europe?
Ms O’Dea: The regulators feed into that picture through a group called the Financial Action Task Force, which is the OECD body. We attend and participate in all the FATF meetings. In the Irish context, there is a steering group which is chaired by the Department of Finance and we sit on that steering group.
Following any recommendations from the FATF reports, we have responsibility for implementing them through the steering group. We then police and monitor those in the credit institutions and the investment firms for whom we have responsibility.
Deputy Durkan: It is estimated that international financiers of dubious origins, for want of a better description, have access to state of the art technology to pursue their various activities. To what extent does the Central Bank use the same technology and to what extent do you liaise with your European co-ordinators in that area?
Ms O’Dea: This is a hot topic at international level, because it is not so much using technology to counter technology. Internet banking can facilitate money laundering because it is more difficult to identify the customer. Procedures for customer identification have to be devised so that a criminal is not given anonymity within the process.
The question is rather how to understand the technology and account-opening procedures in terms of countering money laundering. Particular procedures have been devised at European level to counter money laundering.
Deputy Durkan: Is the Central Bank able to identify the full extent of money laundering, through the European Central Bank or its associates, in the European Union as a whole and in each member state?
Ms O’Dea: We would report our suspicions to the gardaí. The gardaí then follow up on those suspicions and will give feedback to the institutions from time to time. At an international level, this is co-ordinated by the various police bodies.
Ms O’Dea: Yes. You used the word “dubious”. That is actually an international banking term used particularly for anyone associated with any type of criminal activity. Any name with a question mark beside it is passed through the Dubious Names Channel.
Deputy Durkan: The Governor mentioned at the outset the whole question of credit levels. I do not wish to put Mr. O’Connell in an invidious position in answering the question as to whether he agrees with the European institutions or not, but I will ask a question which will not be embarrassing. Do you, as Governor of the Central Bank, have a role in relation to inflation levels? Have you the authority to speak both nationally and internationally on inflation levels within the member states? Does the European Central Bank have a function in relation to warning about inflation levels?
Mr. O’Connell: Inflation is a main pre-occupation. It has to be in any Central Bank. At the European level, we look at inflation on a euro-area basis only. We are obviously aware of inflation in individual countries but in so far as we act on inflation it is on a euro-area basis.
We no longer have a monitoring policy here at home. We cannot invoke interest rates or exchange rates for inflation. We air our views on inflation pretty trenchantly at times. We give advice and we make our views public in our quarterly bulletins.
Deputy Durkan: You spoke earlier about credit levels. Credit levels here have risen to equal other European countries. You said our high growth levels were a contributory factor. What areas contribute most to that increase in credit? Would it be my credit card, for instance?
Deputy Durkan: Would it not be advisable to put them in pecking order? There could be unnecessary consumer spending, which would be alarming, but there could be spending on personal infrastructure such as housing which could be useful.
Ms O’Dea: From the Central Bank’s point of view, even lending to the productive sectors has to be a cause for concern for a prudential regulator. One must always be aware of a possible downturn when there are increases in credit growth, and how that may affect the banks’ balance sheets.
Deputy Durkan: There is an economic theory on that but we will not go into it just now. It would be helpful if the committee could get information on the extent to which credit has increased under the various headings. I would like that to be made available for the next meeting.
Chairman: I think we can leave it at that. I thank the Comptroller and Auditor General for this report. It is very timely both in the aftermath of the DIRT problems and because of the developing economy and the low level of the euro. We will note the report. I thank the Governor for coming forward and I congratulate him and wish him good luck on his appointment for a second term.
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