3.12 This section considers the linkages in practice between the Board of the CBFSAI and the Regulatory Authority. The structure of CBFSAI Board and Authority membership had some noteworthy features (Chart 3.1) which shows the composition at September 2008.28 Thus the Governor was not a member of the Authority, even though he did
28 Note that Tony Grimes‘ predecessor as Director General, Liam Barron, had not been a member of the FR Authority.
retain certain regulatory functions intended to ensure that financial stability issues and ESCB tasks were dealt with in a coordinated fashion.
3.13 Specifically, responsibility for the management of the Central Bank was vested in the Board comprising the Governor, the Director General of the Central Bank, the Chairperson and the Chief Executive of IFSRA, the Secretary General of the Department of Finance ex-officio, and seven non-executive Directors appointed by the Minister for Finance. Of these seven Directors, four had to be members of the Authority. The Authority comprised the Chair, the Chief Executive, the Consumer Director and seven non-executive Directors (Chart 3.1). Non-executive Board and Authority members were appointed by the Minister for Finance.
3.14 The turnover of non-executive Directors has been relatively low, a feature which helped consolidate expertise and build experience. The independent status of Board members was described by the first Governor, J.J. Brennan, as follows:
―It should be remembered on this connection that members of the board of the Central Bank however selected should not consider themselves as acting at that Board in any representative capacity but should place their knowledge and qualifications at the disposal of the Board with a view to reaching the best conclusions from a currency standpoint in the public interest without any regard to any particular interests, official or otherwise, with which they may have outside association.‖ 29
3.15 With no specific qualifications required by legislation, the background of non-executive CBFSAI Board and Authority members reflected a variety of experiences including, in many cases, prior involvement with financial, economic and related fields30. Although it did therefore include specialists and experts in relevant fields, it would be fair to say that, in practice, the composition of the CBFSAI Board and Authority is closer to the generalist model of a central bank board than to the expert model. (Both models are found across Europe.) It may not be out of place to observe that this type of board, whose members are drawn from a cross-section of professional and public sector groups, may be less likely to detect and head off a macroeconomic bubble which is
29 Cited in Moynihan (1975).
30 The question of criteria relating to Board membership has been dealt with differently in other central banks. For example, in the case of the ECB, Article 11.2 of the Statute specifies that individuals selected for membership of the Executive Board must be ―persons of recognised standing and professional experience in monetary or banking matters‖. In the Central Bank Reform Bill (Section 24) currently before the Oireachtas, there is also a provision that the Minister for Finance ―may appoint a person as a member of the Commission if and only if the Minister is of the opinion that that person has relevant knowledge of accountancy, banking, consumer interests, corporate governance, economics, financial regulation, financial services, law or social policy‖.
believed in by peers and which is generating very considerable prosperity throughout society. If an effective challenge against such a consensus were to emerge, it might well have to come from persons with more specialised skills in a better position to identify micro and macro imbalances and urge a contrarian stance that remedial measures were needed.31 That, however, is not to prejudge the relative merits in general of the generalist and expert models – a group of experts that are out of touch with the broader society are prone to other types of error.
3.16 The practice of the CBFSAI Board has generally been to delegate powers to the Governor to exercise and perform all functions, powers and duties of the Central Bank with the exception of those powers which would either not be possible or appropriate to delegate. As with the CBFSAI Board, the Authority delegated most powers to the Chief Executive and, in her area of competence, to the Consumer Director.
3.17 The minutes of both CBFSAI Board and Authority meetings typically record only the broad consensus on the issues discussed and any decisions taken. They do not describe in any detail the frequent debates and often significant differences of opinion that, according to Board and Authority members interviewed for this Report, existed on some issues, especially the possible risks to financial stability.
3.18 A reading of the minutes confirms that discussions at CBFSAI Board meetings often covered broad themes such as recent international monetary and financial developments, and macroeconomic developments in Ireland and the euro area. The CBFSAI Board also discussed such matters as the Central Bank‘s own investment policy as well as general management and budgetary issues. In addition, the CBFSAI Board received regulatory updates from the Authority providing the latest information on the main issues they faced.
3.19 The Authority‘s minutes reveal a wide range of specific issues on its agenda. Initially, issues related to the establishment of IFSRA tended to predominate. Subsequently the agenda assumed a degree of stability with particular prominence given to the regular Chief Executive‘s Report which included both prudential and consumer protection issues. A prudential pack containing detailed tables on a range of (historical and current) prudential indicators was provided to the Authority on a quarterly basis. This
31 However, even an ―expert model‖ board could mis-diagnose events, for example, as occurred with the FSA in the UK.
pack contained data on the aggregate banking system as well as on selected individual institutions. It appears, however, that these data were not discussed extensively, apart from occasional specific questions relating to individual institutions. Several members of the Authority have suggested that discussion of a range of relatively minor issues may have been at the cost of more system-wide issues.
3.20 Unsurprisingly, the Authority paid particular attention in the early years to issues relating to consumer matters32 which were considered by many as being of the highest priority. However, it would be wrong to suppose that over the period as a whole the Authority devoted most of its time to consumer protection issues; this is not borne out by an examination of the agendas of the Authority. Furthermore, although the senior staff member in charge of prudential regulation – who had equal rank in the organisation with the Consumer Director – was not a statutory member of the Authority (unlike the Consumer Director), this seemingly anomalous position was addressed by the arrangement (which was formally notified by the Chair to the Minister for Finance) that he attend all Authority meetings as a matter of practice.
3.21 Since there was some overlap between Authority and CBFSAI Board membership but in one direction only (Authority to CBFSAI Board), issues within the remit of the Authority that fell to be considered also at CBFSAI Board meetings would normally have been discussed by the overlapping members beforehand; this facilitated these members voting as a block on matters of importance to the Authority. The most contentious of these related to the cost and quality of available resources and, in particular, the provision of information technology.
3.22 Documents were shared smoothly between the Authority and CBFSAI Board, and there has been no suggestion of any reluctance to share information. Relevant Authority papers including the Chief Executive‘s Report and the prudential pack were provided to the CBFSAI Board. Thus, while it was the Authority that took the lead in deciding on issues relating to financial regulation, under these arrangements, any of the issues, especially if they might have implications for financial stability, could have been raised at the CBFSAI Board. However, this did not happen a great deal before 2008, apart
32 With the exception of the 2008 Annual Report, all the previous reports and the strategy documents submitted to the Dáil emphasised the primary role of the Financial Regulator in the consumer protection area.
from the joint meetings of the CBFSAI Board and the Authority that were held to consider the draft Financial Stability Reports (discussed in Chapter 6).