patrick honohan : carelessness or misfortune? lessons from our generation ’ s two macroeconomic collapses remarks by mr patrick honohan, governor of the central bank of ireland, at an event marking the retirement of professor john fitzgerald, economic and social research institute ( esri ), dublin, 22 october 2014. * * * two deep national macroeconomic crises, each following suddenly after a change of exchange rate regime, have defined the working life of john fitzgerald ’ s generation of irish macroeconomists. separated by a decade and a half of growth and rapid recovery, the two crises are often spoken of in the same breath, sometimes to say that they were but variants of the same problem ; sometimes to highlight the differences. so which is it : should ireland, once bitten, have been sufficiently shy to avoid the second, or was it really quite different? and even if there are similarities, is there a danger of neglecting important differences that, if understood and learnt from, would help improve the recovery process that is still under way and help avoid an early recurrence? in some important respects, it is the similarities between the two episodes that jump out : spending patterns that exceeded the economy ’ s ability to generate output that could pay for what was spent ; policy errors based on exaggerated reliance on bowdlerised versions of simplistic paradigms ( a naive caricature of keynesianism in the first instance, a credulous adoption of intensive financialisation in the second ) ; an almost reckless disregard for the fiscal consequences of policy decisions. and yes, the experience of the past decade has been yet another example of the start - and - stop pattern of the hare - and - tortoise metaphor used more than a decade ago by some other old - hands to describe the previous halfcentury. but the dynamics of the two crises differed a lot. the second crisis happened faster and resulted in a deeper loss of output and of employment, especially of men but with women also affected much more and for longer than in the earlier episode. public debt jumped to a roughly equivalent proportion of gdp, but did so from a much lower base and much faster in the recent episode. asset prices moved sharply in both cases, but were far more important in the more recent episode. the boom before each new crisis tends to display subtle differences from what has gone before. it is these differences that can blind policy makers to the vulnerabilities that are building. in the recent crisis

of customers and redress and compensation paid to date. i can detail aggregate amounts, however, and for the benefit of the committee, i have provided the relevant tables in this statement. it is also important to note that the central bank does not have the statutory power to compel lenders to implement redress and compensation programmes in respect of failures that occurred prior to the introduction of the central bank ( supervision and enforcement ) act 2013. we were granted such powers, having sought them, in the 2013 act. however, i believe the central bank ’ s robustness of approach in this matter is evident from the principles of redress we have laid down and published, and with which we expect lenders to comply. our robustness of approach is also evident in the fact that it is not only our consumer protection directorate, but our separate enforcement directorate, which is actively involved in the tracker examination. where regulatory breaches are suspected, cases may be referred to enforcement. we are committed to taking robust enforcement action aimed at promoting principled and ethical behaviour by and within regulated entities. to date, the central bank has concluded an enforcement investigation in respect of tracker mortgage failures identified at springboard mortgages limited and imposed a monetary penalty of €4. 5 million on that entity in respect of the failures. the monetary penalty paid by the entity is the highest penalty ever collected by the central bank. this penalty is in addition to the figure of approximately €5. 8 million which springboard mortgages limited paid to affected customers as part of the mortgage redress programme. in addition to the investigation into tracker mortgage - related matters at springboard mortgages limited and permanent tsb plc referenced above, the central bank has also commenced an enforcement investigation into tracker mortgage - related matters at ulster bank ireland dac. we may also commence other investigations, as appropriate, into other lenders and persons concerned in the management of such entities where there is evidence of non - compliance with regulatory requirements. in this regard, enforcement activity will be influenced by the outcome of the reviews currently being conducted as part of the tracker examination. in short, all possible enforcement angles, including potential individual culpability, will be thoroughly investigated and analysed in the context of the legal framework. enforcement measures will be deployed as appropriate, including investigating issues and taking cases under the central bank ’ s administrative sanctions procedure together with the use of our fitness and probity powers. boards of lenders are expected to ensure appropriate control, governance and management in