# Elderfield at the Dail Committee



## Brendan Burgess (15 Apr 2010)

I watched this yesterday afternoon, and this is my take on it. The full minutes will be issued later on www.oireachtas.ie .

*Overall approach *
  He was very impressive, not just in what he said, but the way he said it. 

  He was very clear. He was very direct. He didn’t mince his words. He did not feel obliged to tell the TDs and Senators what they wanted to hear. 

  Anyone listening to him would be left in no doubt that he means business. 

  He is also very clever. He is only three months in the job and is absolutely on top of his brief. Many of the issues he has to deal with are complicated and he only twice referred to his two colleagues and then only to confirm his own understanding of some minor detail. 

  He was asked if there had been any political intervention and he said that there had not been. But he is reasonable and he will listen to people e.g. the deputations about Quinn. But I got the impression that such delegations were going to listen to him explaining why he had to do what he had to do, rather than he hearing from them.


*Quinn Insurance *
  He said in his introduction that he did not want to talk about Quinn but that he would come back at a later stage and discuss it in detail. But almost every member asked him about it anyway and he answered their questions as far as he could. 

  He was asked if he was not being a bit heavy handed. He said that he was not.

  On no fewer than three occasions, he said 
  “We had a Persistent and serious breach of the solvency requirements by a major 
  insurance company over many years”  No mincing of words here. 

  He said that the issue will be resolved on Monday with the appointment of an official Administrator. 

  He was challenged on this on the grounds that he was prejudging the outcome. He was clear that there was not sufficient reserves and his position would change only if someone came up with the money and so far, no one had done so. He actually said “Show me the Money!” 

  A Cavan based senator said that he was giving the banks until the end of the year to sort out their capital position but he was giving Quinn only one week. He replied that the reserve requirements for the banks were new and higher. The solvency requirements for Quinn were not new and were the same for all insurance companies. They had been persistently in breach. Interestingly two other companies breached the 150% solvency requirement recently, but they brought it back in line within days. 

  Two broke the 100% solvency requirement and they had administrators appointed.

  He had sympathy for the 5,600 employees and their families but his responsibility was clear – it was to the 1.3m policyholders.


*Staffing *

  He wants to increase the staff from 360 to 510 by the end of this year. After that, he reckons that they require a further 200 staff. 

  “We have no enforcement team
  We have no investigation team 
  If we want to do an investigation, we have to take people off normal supervision”

*Anglo *
  He was sure that Anglo was systemically important at the time of the guarantee. It’s interesting that when he says it, it has so much more credibility than a government minister saying it. I would still question it, but I would tend to trust his judgment. 

  Winding up Anglo immediately would not be a good idea. He agrees with the plan to split it into an asset management company and a good bank. The asset management company won’t need a capital reserve as it’s not a bank.  It has to be decided which parts goes to the bank and which parts go to the asset management company. He spoke, in passing,  about the contractual obligations to the bondholders in the context of the winding up.

*Bank solvency*
  He reckons that the new standards are tougher than those in the UK and US because the 8% is after very heavy stress testing. They must account now for all their loan losses up to 2012. They must allow for a 6% default in the home mortgage book. 

  The banks will be adequately capitalized after that. The government will own less than 50% of the Bank of Ireland. He wasn’t sure about AIB. 

*Overcharging *
  He wants the backlog dealt with. The situation is unacceptable. 

*Fitness and probity*
  For me, this was a great bit. The old FR regarded Fitness and probity as being about filling out forms. Elderfield is clear that it is much more than this. 

  He said that probity is not sufficient. The absence of a criminal record might make someone proper, but it does not make them competent. They will have to test for the competence of the executives and directors through interviews. 

  He was very clear that they will seek to remove people who are unfit and who lack probity.  They may be challenged in the Court and may lose some, but it has to be done. This is a marked contrast to the previous regulator who felt that losing a court case would damage the reputation of the regulator.  Elderfield is more like Joe Meade. 

*There is a serious gap in regulation of the stockbrokers over mis-selling of investments*
  Up to 1 Nov 2007, the introduction of MiFID, stockbrokers were regulated by the Stock Exchange. From then they have been regulated by the FR. 

  The FR cannot hear complaints about anything which happended before 1 November 2007. 

  The Stock Exchange agreed to hear such complaints but have now declined to do so. So effectively complaints about mis-selling of investment products are escaping.
  The FR is trying to find a legislative way to deal with this but the legal advice is “not encouraging”. He has appealed to the SE to reverse their decision. 

*Credit Unions*
  They will continue to have a separate division for Credit Unions. They won’t apply a “one size fits all” approach. If some credit unions behave like banks, they will be regulated like banks. 

*His only stutter…*

  He was asked by Shane Ross(?) if there were any barriers to him making the necessary changes to the way the FR was operating e.g. trade union practices etc. and he said that there was no such barrier. Then Shane Ross asked “What about the staff’s 32 hour working week?” It was the first time Elderfield was a bit stuck but they laughed and didn’t pursue the issue.


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## NorfBank (15 Apr 2010)

Thanks Brendan, I just caught some of this on the news and was searching online for a summary of what he said. Good timing.


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## Sunny (15 Apr 2010)

You do have to laugh at Shane Ross sometimes!


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## canicemcavoy (15 Apr 2010)

He also didn't pull any punches when it came to criticising the previous Financial Regulator and his office. I doubt he'll be getting any golf outing invites from Neary.


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## Vega (15 Apr 2010)

Sunny said:


> You do have to laugh at Shane Ross sometimes!


 
You have to laugh at him a lot, like when he says the shorting of bank shares should not be banned because it's a legitimate market practice!  He reminds me of Eamon Dunphy.


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## Brendan Burgess (15 Apr 2010)

Ross was one of the last to speak and so most of the issues were covered. But he did raise a very valid point.

Elderfield knows what to do, but he will have huge staffing issues. He talks about interviewing the senior bankers. I don't think that the FR has enough staff of sufficient calibre to do such interviewing. 

They do seem to have very long holidays and if they do work only a 32 hour week, it will be very difficult to get anything much done. 

Brendan


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## Sunny (15 Apr 2010)

Yeah, a colleague of mine left recently to join them. Is actually very impressed with the quality of people but couldn't get over how under resourced they are and some of their work practices.


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## carpedeum (15 Apr 2010)

I thought Elderfield's performance and answers were the most encouraging sight since the banking crisis started and reassures all future investors and taxpayers. Let's hope he gets the staffing of 100 plus that he needs. His hints at investigating the stock exchange are interesting. He seems to be determined to breach the inner circles of Irish society. He also commented on the moral question that needed to be answered of whether or not we should help people who invested in property in addition to their homes for investment and profit. Going by reports on today's media, he irritated ALL political parties! That sounds like a good thing!


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## tiger (15 Apr 2010)

Thanks for the excellent summary Brendan.
Have to say I found it uplifting 
We don't need "doom and gloom merchants", similarly we can't gloss over things with "we are where we are".
We need to clean shop and change the way things are done, sounds like the FR for one is up to the job.


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## Superman (15 Apr 2010)

good summary - encouraging.


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## shanegl (16 Apr 2010)

canicemcavoy said:


> He also didn't pull any punches when it came to criticising the previous Financial Regulator and his office. I doubt he'll be getting any golf outing invites from Neary.



Some thought that Neary was doing a fine job. I wonder now that they see how the job should be done have they changed their mind?


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## lightswitch (16 Apr 2010)

Excellent summary Brendan, thanks.


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