Financial Regulator Matthew Elderfield has told an Oireachtas committee that higher interest rates for mortgage holders are an 'unfortunate but inevitable consequence' of the banking crisis.
He told the Oireachtas Joint Committee on Economic Regulatory Affairs that Ireland had enjoyed very low mortgage rates, but this era was coming to an end.
Mr Elderfield said banks' business models in the past were fundamentally flawed, and had subsidised 'unsustainably low' interest rates. But he said he would use the regulator's powers to ensure that consumers in debt are treated fairly.
He said he would not comment on the Quinn Insurance issue, only to say that he was faced with a 'serious and persistent breach of solvency requirements' by an insurance company and was determined to take action to protect the interests policy holders.
Answering questions from committee members, he did also say he did not believe his handling of Quinn Insurance has been heavy-handed.
Matthew Elderfield said that if someone comes up the money to fill the solvency breach in the company then the Regulator's office will take a different approach.
He also said he thinks it was in the best interests of everyone that administrators be appointed to the the insurance company.
Mr Elderfield also said he believed a rapid winding down of Anglo Irish Bank would be 'prohibitively expensive', and the structure being developed was a 'reasonable' way to minimise costs to the taxpayer. He said most of Anglo after NAMA wold be concerned with managing its bad assets, with a small new bank also being carved out.
The regulator also said there had been 'serious failures' of corporate governance at a number of financial institutions, and standards in this area needed to be re-assessed. His office will be publishing a consultation paper on this issue in the coming weeks, which would set tougher standards and restrictions.
The Financial Regulator said he was surprised at the lack of resourcing of the regulatory system here. He said the situation of having two regulators for the largest banks was 'miles off what was needed.' He said a lack of resources impacted on enforcement.
Mr Elderfield also said the financial crisis in Ireland had a definite home grown element and said there were definite corporate governance failures. He also emphasisied that he felt comfortable about his capacity to act independently.
'Unlikely banks will need further recapitalisation'
The Financial Regulator indicated to the committee that it is unlikely the banks will require further recapitalisation.
Mr Elderfield said that while it was impossible to rule out further funding of the banks, he said they had looked at 'pretty dire situations' which would not require further recapitalisation.
He said the international reaction was favourable towards the Irish political willingness to 'bite the bullet'.
Mr Elderfield said it was impossible to decipher in hindsight if the banks would have not required recapitalisation had proper regulatory standards been followed.
He said the tidal wave that followed Lehmans in the US would have still have left damage, but the damage would not have been as great. He repeated that it was acknowledged that there had been regulatory failures.
Mr Elderfield also said that he has received approval to hire 150 extra staff this year, but he said ideally his office would need a 'couple of hundred more'.
He also said the Government faces difficult choices on how to deal with homeowners who are in arrears. He said there is a serious moral hazard question to be asked before any scheme is put in place to help those in debt. He added that there is no 'silver bullet' to solve the problem.
He did, however, say that he would use the regulator's powers to ensure that consumers in debt are treated fairly.
Mr Elderfield also described as 'unacceptable' a gap which meant no-one could raise a concern about transactions with a stockbroker which took place before November 2007. The gap is a result of changes in the stock exchange's rule book. He said he would seek a legislative route to close this gap, but if this were not possible, the exchange would have to take responsibility.
