Professor Lane starts at 2:29:30.
Sitting suspended at 11.30 a.m. and resumed at 11.45 a.m.
MEMBERS PRESENT:
Deputy Pearse Doherty, | Senator Sean D. Barrett, |
Deputy Joe Higgins, | Senator Michael D’Arcy, |
Deputy Michael McGrath, | Senator Marc MacSharry, |
Deputy Eoghan Murphy, | Senator Susan O’Keeffe. |
Deputy Kieran O’Donnell, | |
Deputy John Paul Phelan, |
Professor Philip Lane
Chairman
Professor Philip Lane
Chairman
Professor Philip Lane
Chairman
Professor Philip Lane
Chairman
I thank Professor Lane. | 310 |
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
Would I be correct in saying Professor Lane’s view is that the improvement in our weightless economy prior to 2002 was a genuine national increase of abilities and an increase in our GDP? | 313 |
Professor Philip Lane
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
Does Professor Lane think that deep down, the banks knew the market had overheated? | 317 |
Professor Philip Lane
I do not think it is a question of knowledge – it is a question of risk management. | 318 |
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
In regard to the funding cliff that appeared subsequent to that when the guarantee was concluded, did that have an influence on the eventual State bailout? | 325 |
Professor Philip Lane
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
But the European Commission rates were higher than the IMF rates. | 329 |
Professor Philip Lane
Senator Michael D’Arcy
Professor Philip Lane
Senator Michael D’Arcy
I just want to explore this a little further—– | 334 |
Chairman
The Senator is out of time. | 335 |
Deputy Joe Higgins
Professor Philip Lane
Deputy Joe Higgins
Professor Philip Lane
Deputy Joe Higgins
Professor Philip Lane
Deputy Joe Higgins
Professor Philip Lane
Deputy Joe Higgins
Professor Philip Lane
Deputy Joe Higgins
Professor Philip Lane
Deputy Joe Higgins
Professor Philip Lane
Chairman
Professor Philip Lane
Chairman
Professor Philip Lane
Chairman
Does the bank still own the mortgages when it issues the bond? | 357 |
Professor Philip Lane
Senator Susan O’Keeffe
Professor Philip Lane
Senator Susan O’Keeffe
Professor Philip Lane
Senator Susan O’Keeffe
Do they effectively have more power than the Central Bank because they are profit centres and because of the way they operate? Perhaps “clout” is a better word than “power”. | 364 |
Professor Philip Lane
Senator Susan O’Keeffe
However, the regulation failed. | 366 |
Professor Philip Lane
The regulation was not done. | 367 |
Chairman
The Senator made a statement. Is she asking a question? | 368 |
Senator Susan O’Keeffe
In fairness, some of the evidence that others have stated—– | 369 |
Chairman
In fairness, the Senator cannot make a statement and ask a witness to agree with it. The Senator should ask a question. | 370 |
Senator Susan O’Keeffe
Others have observed that regulation failed so I am saying—– | 371 |
Professor Philip Lane
Senator Susan O’Keeffe
There is a suggestion there that the Central Bank could not act by itself and that there was a political inclination. | 373 |
Professor Philip Lane
Chairman
Senator Susan O’Keeffe
Professor Philip Lane
Senator Susan O’Keeffe
Professor Philip Lane
Deputy John Paul Phelan
Professor Philip Lane
Deputy John Paul Phelan
Did Professor Lane feel that in any of those casual meetings with no agenda anything he said was reflected in decisions which were subsequently made? | 383 |
Professor Philip Lane
They were—– | 384 |
Chairman
Be mindful of where we are going, Deputy. | 385 |
Professor Philip Lane
No, they were at the super-casual end of the scale. | 386 |
Deputy John Paul Phelan
Professor Philip Lane
Deputy John Paul Phelan
Professor Philip Lane
Deputy John Paul Phelan
Some of those voices were very late in the day. | 393 |
Professor Philip Lane
Deputy Pearse Doherty
Professor Philip Lane
Deputy Pearse Doherty
Professor Philip Lane
Right. | 399 |
Deputy Pearse Doherty
Professor Philip Lane
Deputy Pearse Doherty
Professor Philip Lane
The Netherlands. | 403 |
Deputy Pearse Doherty
—–the Dutch Central Bank at exactly the same time. | 404 |
Professor Philip Lane
That is a good counter-example and a good question to raise with the people involved in that decision. | 405 |
Deputy Pearse Doherty
Professor Philip Lane
Deputy Pearse Doherty
Okay. Thank you. | 408 |
Chairman
Professor Philip Lane
Chairman
Professor Philip Lane
Yes. | 412 |
Chairman
Therefore, in Professor Lane’s view, should the ECB have approved such enormous loans to banks such as Anglo Irish Bank and the Irish Nationwide Building Society during the period 2008 and 2010? | 413 |
Professor Philip Lane
This was essentially on the understanding that the Irish Government was going to stand behind those banks. | 414 |
Chairman
Does Professor Lane think that the ECB should have approved such loans? | 415 |
Professor Philip Lane
I have not thought enough about that direct question to give any kind of interesting answer. | 416 |
Chairman
I will give Professor Lane a few moments if he needs to think about it. | 417 |
Professor Philip Lane
The Chairman is asking about Anglo and Irish Nationwide. | 418 |
Chairman
Professor Philip Lane
Chairman
The ECB was signing the cheques. I am sorry to press Professor Lane on this but he seems to be struggling with the answer. | 421 |
Professor Philip Lane
If the Irish Government was standing behind those banks, essentially that in the end was a matter for the Irish—– | 422 |
Chairman
The Irish Government was standing behind it, but the ECB was signing the cheques. | 423 |
Professor Philip Lane
On the basis of a guarantee—– | 424 |
Chairman
The issue is regarding the ECB’s behaviour, not the Irish Government’s behaviour. Was the ECB right to fund those banks during 2008 to 2010? | 425 |
Professor Philip Lane
On the basis that they were being guaranteed by the Irish Government, yes. | 426 |
Chairman
Okay. Was that on the basis that they needed liquidity or on the basis that they were solvent? | 427 |
Professor Philip Lane
On the basis they were solvent because solvency was guaranteed by the Irish State. | 428 |
Chairman
Thank you. I call Deputy Kieran O’Donnell. | 429 |
Deputy Kieran O’Donnell
Professor Philip Lane
The solvency of those banks was entirely because the Irish Government was prepared to recapitalise them and provide that support. Therefore, in the absence of the public recapitalisation—– | 431 |
Deputy Kieran O’Donnell
With due respect, Professor Lane, we clearly now know—– | 432 |
Chairman
I would advise the Deputy not to make his own judgment. | 433 |
Deputy Kieran O’Donnell
I am sorry. | 434 |
Chairman
I would advise the Deputy to put a question. | 435 |
Deputy Kieran O’Donnell
With hindsight, is it a fair comment to make that at the time of the guarantee being put in place, both Anglo Irish Bank and the Irish Nationwide Building Society were insolvent? | 436 |
Professor Philip Lane
Deputy Kieran O’Donnell
Professor Philip Lane
Chairman
I will just come in on Deputy O’Donnell’s question. Was it the view of the ECB between 2008 and 2010, based on the information that was presented to it, that these banks were solvent? | 440 |
Professor Philip Lane
If the Chairman could somehow communicate that question to the ECB and get an answer from it, that would of course be the way to—– | 441 |
Chairman
Professor Lane has an understanding of EU monetary policy. He would be of the view that, to get the money, the banks had to be solvent. | 442 |
Professor Philip Lane
Sure, but from a solvency point of view, the fact that they were being recapitalised and also had the guarantee of liabilities from the Irish Government was sufficient. | 443 |
Chairman
Regardless of whether there was a guarantee or whether the guarantee was two blanket guarantees, the banks had to be solvent to qualify for ELA. | 444 |
Professor Philip Lane
Right, but one source of solvency was State recapitalisation. | 445 |
Deputy Kieran O’Donnell
Professor Lane’s area of expertise is European monetary policy. | 446 |
Professor Philip Lane
Right. | 447 |
Deputy Kieran O’Donnell
So, if the ECB was extending ELA funding—– | 448 |
Professor Philip Lane
Again, the national Central Bank extends the ELA with the supervision—– | 449 |
Deputy Kieran O’Donnell
It extends that funding under the umbrella of the European Central Bank. | 450 |
Professor Philip Lane
Sure. | 451 |
Deputy Kieran O’Donnell
Chairman
We will move on after this because Professor Lane has answered many questions. | 453 |
Professor Philip Lane
Deputy Kieran O’Donnell
I have just one final question. | 455 |
Chairman
That is okay if the Deputy moves to another area. | 456 |
Deputy Kieran O’Donnell
Professor Philip Lane
Deputy Kieran O’Donnell
Going back to Professor Lane’s June 2008 meeting—– | 459 |
Chairman
Could the Deputy move back towards what we are talking about, please? | 460 |
Deputy Kieran O’Donnell
I will be brief. At that meeting, what was the subject of discussion? | 461 |
Professor Philip Lane
I will try to recall. | 462 |
Deputy Kieran O’Donnell
Who looked for the meeting? | 463 |
Professor Philip Lane
At the time, it was not so consequential. | 464 |
Deputy Kieran O’Donnell
Did the former Minister look for the meeting with Professors Lane and Honohan—– | 465 |
Professor Philip Lane
Yes. | 466 |
Deputy Kieran O’Donnell
—–or did they look for it? He looked for the meeting with them. | 467 |
Professor Philip Lane
Deputy Kieran O’Donnell
Was banking discussed at all? | 469 |
Chairman
Senator Sean D. Barrett
Professor Philip Lane
Right. | 472 |
Senator Sean D. Barrett
Professor Philip Lane
Senator Sean D. Barrett
As we plot the future, have we something to learn from Canada, for example? | 476 |
Professor Philip Lane
Senator Sean D. Barrett
Professor Philip Lane
Deputy Eoghan Murphy
Professor Philip Lane
Yes. | 481 |
Deputy Eoghan Murphy
Professor Philip Lane
Deputy Eoghan Murphy
So our true structural imbalance is something we can see only after the fact. | 484 |
Professor Philip Lane
Deputy Eoghan Murphy
When talking about a rainy day fund, what place does the National Pension Reserve Fund, NPRF, have? | 486 |
Professor Philip Lane
Deputy Eoghan Murphy
We pursued the wrong investment strategy with the NPRF. | 488 |
Professor Philip Lane
Not if it is a national pension reserve fund. | 489 |
Deputy Eoghan Murphy
From the point of view of this crisis we did. | 490 |
Professor Philip Lane
Deputy Eoghan Murphy
Was it a mistake to divest the NPRF when we did and invest that in the banks, regardless of where the money went in the banks? Was the timing of the divestment a mistake? | 492 |
Professor Philip Lane
Senator Marc MacSharry
With entry to the EMU by Ireland do you, Professor Lane, think the Central Bank here went on autopilot? | 494 |
Professor Philip Lane
Senator Marc MacSharry
Exactly. | 496 |
Professor Philip Lane
Senator Marc MacSharry
So the Central Bank was not on auto pilot—– | 498 |
Chairman
Senator Marc MacSharry
It is not a case of what the Chairman reckons I am implying. | 500 |
Chairman
Can the Senator clarify his question? | 501 |
Senator Marc MacSharry
Auto pilot. | 502 |
Chairman
Is the Senator making the judgment that the Central Bank was on auto pilot? | 503 |
Senator Marc MacSharry
Professor Philip Lane
Senator Marc MacSharry
Professor Philip Lane
Professor Honohan talked about this last week. I do not think I have a different view to his. | 507 |
Senator Marc MacSharry
I was not aware he gave a clear answer. | 508 |
Professor Philip Lane
Senator Marc MacSharry
Professor Philip Lane
Senator Marc MacSharry
We do not know that. | 514 |
Professor Philip Lane
Chairman
I ask the Senator to be brief as we are out of time. | 516 |
Senator Marc MacSharry
Professor Philip Lane
Deputy Michael McGrath
Professor Philip Lane
Deputy Michael McGrath
Is Professor Lane an advocate of Ireland’s membership of the euro? | 523 |
Professor Philip Lane
Deputy Michael McGrath
Does Professor Lane think Ireland is better in than out? | 526 |
Professor Philip Lane
So long as the euro exists, yes, definitely. | 527 |
Deputy Michael McGrath
Professor Philip Lane
Deputy Michael McGrath
Professor Philip Lane
Deputy Michael McGrath
Thank you. | 533 |
Chairman
Professor Philip Lane
Chairman