Irish Banking

The experience of this former IFSC banker is a parable of Celtic Tiger Ireland, illustrating the culture of light-touch regulation that led the country to Nama and bank bailouts

When James joined the company in May 2007, he brought glowing references from his previous employer, another financial services company, stating that he was "a person of high integrity, an honest, capable and hard worker and a good team player". Neither he nor his new bosses realised that the first of those qualities (the high integrity) would come into such sharp conflict with the last (the good team player). The tragedy, not just for James but for Ireland, is that, in the world of Irish banking, it was scarcely possible to be both. At a simple and personal level, James's story is, in microcosm, the reason why every Irish family has been saddled with a debt of €50,000 to pay for the recklessness and sometimes outright criminality of our banking and regulatory systems.

James's job with his new employers was that of "risk manager". It demanded a head for figures (he is a trained economist) but, he says, it was a simple enough task. "I was just a glorified book-keeper. My job was just to say 'these are the figures', but I had a reputation of being credible. The be all and end all of risk management is to see everything and touch nothing."

His employer's business was often complex, but James's job came down to the basics - how much money was going out and how much was coming in. Under Irish banking regulations (and indeed under any conceivable regulatory regime) the most fundamental rule was that a bank had to have enough money coming in to pay for its cash outflows. This is what is called "liquidity".

And when James took up his job, the Financial Regulator had a new liquidity rule: at all times, cash inflows had to equal at least 90 per cent of cash outflows. While the Regulator was notoriously unconcerned about wider banking ethics, this was bread-and-butter "prudential" stuff. In soccer terms, this wasn't about Thierry Henry's handball, it was about having 11 players on each side and a round ball.

James compiled reports at the close of business every day and at the start of business next morning. And he quickly noticed that the figures were not hitting the essential 90 per cent. "I was getting 75 per cent, even 65 per cent, not occasionally, but day in, day out. I thought: 'Is it my fault?' Then I asked questions and was told 'it's a system error', or 'a trader forgot to book a deal' or 'it's complicated. Give it a bit more time and you'll understand. It will be fine'."

So James signed the required daily liquidity reports and his company's chief executive endorsed them.

BUT IT WASN'T FINE. James looked again at the Regulator's rules. They were as clear as they were, from his point of view, alarming. First, they said that the degree of deviation from the 90 per cent rule that could be permitted at any given time was 1 per cent. He was seeing deviations on a regular basis of up to 40 times what was allowed. Second, the rules said that any failure to meet the requirements had to be reported to the Financial Regulator "immediately". And third, they said that any breach of the liquidity rules "by act or omission" was a criminal offence that could result in up to five years in prison.

Perhaps because he is not Irish, James took this warning at face value. "I didn't feel like seeing the inside of Mountjoy. This is not me being Mother Teresa. It's just me not wanting to go to jail."

After weeks of pressure, James eventually insisted that the chief executive inform the Regulator of the

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