Anglo Irish should have been allowed to fail in 2008 - central bank
By Padraic Halpin
DUBLIN (Reuters) - Anglo Irish Bank, the lender at the heart of Ireland's banking crisis, should have been allowed to fail instead of being included in government guarantees on bank liabilities in 2008, central bank governor Patrick Honohan said on Thursday.
Like all Irish lenders, Anglo's years of reckless lending helped push Ireland into a bailout in 2010. It was put into liquidation two years ago in deal with the European Central Bank (ECB) to ease the state's debt burden.
Giving evidence at a parliamentary inquiry into the banking crisis, Honohan said external partners might have responded to an early bid to wind down Anglo with compromise proposals that could have cut the cost of rescuing the banking sector. That cost to taxpayers now stood at about 40 billion euros (32.8 billion pounds), he said.
At the time, Ireland poured 64 billion euros into its banking sector and, while it has begun to recover some of the costs, some 35 billion swallowed up then by Anglo and fellow failed lender Irish Nationwide will not be recovered.
"Yes, I think so. It should have been removed," Honohan, who was appointed governor in 2009, said when asked if Anglo should have been allowed to fail a year earlier.
"Ireland got a bad rap for introducing a guarantee but it would have been even worse of a rap if it said we don't care what you think, we're just going to liquidate it and to hell with the bondholders. It would have been seen as the European Lehman's and the government would have been pilloried."
"That doesn't mean they shouldn't have done it. What I think they should have done was to say we have this bank going down and we can't afford to guarantee. The risks are too big and you've got to risk-share with us."
Referring to subsequent conversations with then finance minister Brian Lenihan, he said Lenihan, who died in 2011, favoured nationalising Anglo and Irish Nationwide on the night of the guarantee but "he was not the senior politician".
He also said the government did not discuss plans to bring in a blanket guarantee with the ECB before introducing it in the early hours of Sept. 30 2008, but that it was already trying to limit the damage by that time.
"Could all of that sum of money been avoided, straight answer 'no'. Could it have been whittled down? Yes, but it would have been very hard to avoid it all," he said.
"The damage was being done mainly in 2004, 05, and 06. If you came up with a really good idea in 2006. Too late."
(Editing by Louise Ireland)
