Only eight years ago, confidence in the Central Bank of Ireland (CBI) was arguably at a historic low. The central bank had failed to foresee the massive crash in Irish housing prices that led to the failure of much of the country’s banking system, resulting in a massive bailout financed by the European Union.
There were many other institutions and individuals with responsibility for the crash, including the government of the day, the housing magnates produced by Ireland’s building boom and the banks that had financed their activities. But the central bank possessed the mandate to regulate the Irish financial sector, and it had not done so, in the opinion of many Irish citizens, until too late.
Reports in the Irish media and the records of the Dáil Éireann, Ireland’s parliament, clearly show that eight years ago, much of the country had lost confidence in the central bank. This sentiment seemed to have been shared by arguably the most distinguished former governor of the central bank, TK Whitaker (governor from 1969–76), who told then-governor Patrick Honohan (2009–15) in 2011: “I’m counting on you to save the country from national humiliation.”
In one way, the CBI faces a smaller test of its transparency than some of its peers. After all, Ireland’s policy rates are set by the European Central Bank. But in many other respects, the tasks faced by Honohan and current governor Philip Lane, and their staff, are more difficult compared with those of other central banks.
The loss of confidence in the institution that followed the bursting of the Irish housing bubble and the slump in its banking sector, had the potential to rob the central bank of support for any tough measures. Yet, under first Honohan and now Lane, the central bank was faced with the necessity of taking tough measures to prevent a resurgence of unrestrained housing prices and irresponsible banking. Inaction was not an option, but action was likely to be unpopular.
And so it has sometimes proved, with many media outlets, politicians and ordinary citizens criticising some CBI measures – in particular, the imposition of restrictions on Irish housing loans.
Financial crisis aftermath
The central bank also faced the necessity of considerably increasing its staffing numbers and of attracting the best-qualified personnel to fill those new posts. Yet the Irish public sector was constrained by a salary freeze in the aftermath of the financial crisis, and any raise in staffing numbers was likely to be unpopular.
The CBI has had to work hard in winning back the public’s trust. It might have tried doing so by keeping as much hidden as possible, by increasing its opacity. Instead, it has opted for a diametrically opposed strategy
The CBI has had to work hard in winning back the public’s trust. It might have tried doing so by keeping as much hidden as possible, by increasing its opacity. Instead, it has opted for a diametrically opposed strategy: to embark on a process of educating the Irish public about complicated financial matters, and to open up more and more of its own workings, in an effort to win public support.
For example, the central bank has recently begun publishing its official correspondence with the country’s lawmakers. The information in these letters on policy matters is often extremely detailed. It has for some time published details of its expenditure and contracts.
The CBI’s website – upgraded in March 2017 – is easy to use and attractive. But what makes the Irish website stand out is the way in which it is used to publish information that other central banks do not reveal.
The Central Bank Reform Act 2010 created a commission to oversee the central bank’s governance, similar to other countries. But the CBI actually publishes the minutes of the commission’s meetings on its website, with only small redactions for the needs of operational or commercial confidentiality. It also publishes accounts of its macro-prudential measures committee.
The facts revealed are therefore not always convenient for the central bank itself. The most recently published set of minutes showed some commission members sharply criticising the bank’s management for its handling of malpractice in the tracker mortgage loan market. The criticisms were reported in detail by the Irish press, and previous criticisms have also been thoroughly reported in the local media. Yet the CBI, unlike some other institutions, does not attempt to manage criticisms by ignoring them, but instead by meeting them head on. Statements from the bank’s revamped communications office are prompt and clear, and will acknowledge problems, rather than routinely deny them.
The central bank’s new building, opened in 2017, includes a visitor centre aimed at informing members of the public about the institution’s mission and record. The same transparency is being applied to the CBI’s historical records. In 2017, it launched a public archive, and began releasing records on a 30-year basis. The records are released free of charge to members of the public, and are likely to be a boon to students of the Irish economy.
Many central banks talk about the need to financially educate the public. The CBI has given some of the best examples of how this can actually be done. The “explainers” of various financial topics published on its website are some of the clearest and most comprehensive efforts produced by any official body.
The CBI has chosen to make information available, and to enter the public debate, when it could have become an inward-looking institution. By making this choice, the Irish central bank is seeking to generate public support for actions that may be deeply unpopular with many Irish citizens – both now and in the future. Its goal is to earn itself the support it needs to ensure that Ireland’s economy remains in good health over the long term. The CBI may come to stand as an example to its peers of how to deal with a loss of public support after a crisis. Its transparency initiatives have been a model of a central bank winning back respect by speaking clearly and honestly to the people it serves.
The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Rachael King, Victor Mendez-Barreira, Iris Yeung, Joel Clark and Tristan Carlyle