The chief executive of the Financial Regulator has told an Oireachtas Committee we are witnessing the greatest crisis in the international financial system in living memory.
Pat Neary told the Committee on Economic Regulatory Affairs the watchdog was bringing in new measures to take account of the changed conditions - which he said had brought the taxpayer 'into the frame'.
He said the regulator would immediately recruit an extra 20 supervisory staff with banking experience, who would be placed with key banks to monitor developments.
Banks will also have to set out new business plans focusing on the need to reduce risks, while they will also have extra reporting obligations. Mr Neary said the Finance Minister would announce a number of other measures as part of the guarantee scheme.
The regulator told the committee his office had increased surveillance of Irish banks' position in the latter half of 2007. He said the situation remained manageable until Lehman Brothers collapse in mid-September. He said credit markets, which had previously been working at only a fraction of their capacity, then froze.
'This meant that no inter-bank or international wholesale term funding was available for Irish banks,' he said. Mr Neary added that no regulator or central bank had anticipated the scale of the meltdown in international markets.
The regulator said banks would face increased losses from property-related loans, but the extent of the problems would be linked to how the economy performed.
Mr Neary said that while Irish banks currently had more capital than the rules required, the rules of the game were changing, and market expectations could force other banks to seek equity injections, irrespective of whether they were meeting their regulatory requirements.
Asked about the new staff, Patrick Neary said: 'We have to heighten the level of oversight. We have to put in serious people who know about risk, banking and standards, to make sure that the taxpayers interests are protected.'
Asked whether the new staff would be sitting with the banks' CEOs, or outside their offices, he said: 'I think what we will be asking them to do is follow the risk. They will be spending a lot of time in the treasury management areas, compliance areas but the main initial concerns would be in lending and liquidity.'
