Further to recent comments I made on Twitter regarding the silence of Dublin & Berlin about what German banks got up to in the IFSC [Irish Financial Services Centre], I have received a number of emails asking for further information. My response to these emails is to simply quote a sub-article of the article that was written about me by Fintan O'Toole in the Irish Times. The article was published on Saturday, 3 April, 2010.
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The finance manager who tried to play by the rules
- Fintan O'Toole, Irish Times, Saturday, 3 April, 2010
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....
Light Regulation: The lure of the IFSC
Catastrophic as this week's [Irish, JS] banking bailout figures are, they could actually have been much worse. It is a matter of sheer luck that in 2007, before the credit crunch, a Dublin-based bank called Depfa was bought by the German financial group Hypo Real Estate. Very few people in Ireland had ever heard of Depfa. Although it was as German as sauerkraut, it was actually the largest bank in Ireland - bigger than AIB. It was, in legal and regulatory terms, an entirely Irish company. When the financial crisis unfolded, Depfa brought down Hypo. The cost to the German government so far is €102 billion.
The IFSC [Irish Financial Services Centre, JS], where Depfa was based, provides 25,000 jobs, and at its height brought in well over €1 billion a year in taxes. The downside was that, as well as low corporate taxes, part of the attraction for foreign banks was light regulation. And the need to keep these banks sweet reinforced the ultimately disastrous idea that all our regulators should fight in the featherweight division.
Ireland already suffered, as the Dail's [parliament] Dirt inquiry put it, from "a particularly close and inappropriate relationship between banking and the State and its agencies...[who] were perhaps too mindful of the concerns of the banks, and too attentive to their pleas and lobbying".
These lobbies were immensely strengthened by the growth of the IFSC. The problem was that, as well as having many legitimate operations, the IFSC also contained brass-plate tax-avoidance operations that earned it the tittle of 'Liechtenstein on the Liffey' and sharp operators that led the new York Times to label it 'The Wild West of European Finance'. Yet, even after IFSC-based companies were involved in three spectacular frauds - Europe's biggest corporate collapse (Parmalat); a $500 million fraud by the American Insurance Group (AIG); and the largest single collapse in Australian history - there was no attempt to enhance the regulatory regime. Banks like Anglo Irish couldn't be subject to serious regulation without imposing the same rules at the IFSC. And the absolute understanding was that no one at the IFSC was to be given the slightest cause for anxiety.-----------------------------------------------------------------------------
It is not for me to comment about who brought who down - Depfa, or Hypo Real Estate, but I do recommend reading these blog postings by David Malone on his Golem XIV blog:
David McWilliams, an Irish economist, made a very interesting remark when interviewed for German TV (in English)
