Colm’s columns

Colm Rapple
Irish Mail on Sunday, June 21, 2009

The Mandarins in Dame Street and Merrion Street have still to accept the need for a fundamental change, not only in the structures of our financial regulatory system but also in its deep seated culture of secrecy and unaccountability. That’s very clear from Brian Lenihan’s proposals for a restructured Central Bank that were unveiled during the week.

When the present structures were established six years ago there were ample warnings that they would be inadequate, that the interests of banks and business would continue, as they always had, to take precedence over those of consumers and the public at large.

The warnings were justified. But instead of picking up on some of the alternatives suggested at that time, Brian Lenihan seems intent on creating a unified Central Bank which, of necessity, will have to give more weight to overall bank stability than to detailed regulation. At the same time he wants to hive off some specific consumer protection functions to a new entity composed of the National Consumer Agency and the Competition Authority.

Both bodies have suffered in the past from a lack of resources and they have also been hampered in their work by being given limited remits. Of itself this change will do nothing to enhance consumer protection. It was originally proposed that the Consumer Agency would have powers to challenge the decisions of other regulatory authorities such as those overseeing telecoms, transport or energy.

But the final legislation didn’t allow for that. So the Agency is only allowed talk to these other agencies and express opinions but no more. Presumably that will continue to apply to any decisions made by the Central Bank.

There was no indication in the Minister’s announcement during the week that he wants an urgent change in the “principles-based” approach to regulation which has been shown to be totally ineffective. It’s based on the notion that a regulator can lay down principles and rely on bankers to comply with them. It assumes high standards in high places within the financial services sector. And that assumption doesn’t hold, as we now know all too well.

We do, of course, need some major changes in the structures of the Central Bank and the Financial Regulator but not for its own sake or because the Government wants to be seen to be doing something. But rather because what is really needed is a complete change in the culture of the regulators and that will only be achieved within new structures with some major change in personnel.

That need was recognised by a committee chaired by former Minister Michael McDowell on whose recommendations the current structures are based. He and the majority of those on the committee were strongly of the view that the financial regulator should be totally independent of the Central Bank.

But the Department of Finance and the Central Bank fought hard to maintain its power base and succeeded. The cosy cartel of bankers and mandarins prevailed and continue to control developments. The Financial Regulator was set up as a separate entity but within the ambit of the Central Bank in the same premises with interchangeable personnel.

It is now proposed to bring the entities even closer together, simply hiving off the consumer information and education role to the National Consumer Agency which is in the process of being merged with the Competition Authority. But it seems that the actual consumer protection role will remain with the Central Bank where it will undoubtedly take second place to more general central banking objectives.

The current discredited boards are to be replaced by a commission of, as yet, unstated size. Mr Lenihan hopes to make the new body more accountable to the Government and the Oireachtas but the commission is to be chaired by the Governor of the Central Bank who by dint of Irish and EU law has to be independent of Government.

The Central Bank by its very nature, and by law, has to be secretive and independent. In addition to outlining in greater detail how consumer interests are going to be better served by this new body, Brian Lenihan needs to explain how financial regulation, under the aegis of such a Central Bank can be truly accountable and transparent.

Colm Rapple
Irish Mail on Sunday, June 14, 2009

Consumer prices may have fallen by an average of 4.7% over the past year but that average covers a multitude. Far from falling, the price of some goods and services have soared and those price hikes can’t all be blamed on external factors. The fact is that some Irish suppliers, in both the public and private sectors, are still managing to buck the trend, protecting their profit margins or income levels while getting consumers to pick up the tab.

Not surprisingly, there has been no fall in the cost of medical services. Hospital services are currently costing 9.1% more than they were a year ago and, despite falling by 2.6% last month, doctors’ fees are still 2.2% higher than they were this time last year. Dentists are also tending to ignore the recession. The cost of their services has gone up by 2.3% over the past twelve months.

It’s little wonder that the cost of health insurance is up by a massive 21% on last year. The fact that that increase is well ahead of the increase in medical treatment costs is undoubtedly partly due to the fact that insurance companies have suffered sizeable losses on the investment funds into which they put their reserves.

But did we really get the benefit, through lower premiums, of the massive investments gains they made during the good years?

Can the insurers really justify the near 25% jump in household insurance premiums over the past year or the 12.5% increase in motor insurance costs? Is competition really working as well as the Financial Regulator would have us believe?

It’s equally difficult to understand the justification, if justification there be, for the 11% jump in bus fares over the past year and the 9% increase in rail transport costs. Wage costs have risen by little or nothing while diesel last month was selling at 24% less than it was a year ago. Petrol is down by 11.5% on May 2008.

It is hard to fathom how such massive price increases coupled with service cuts can gel with the Green agenda of promoting public transport.  The cost of air transport has fallen by 9.4% over the past year while the cost of sea transport is down 14.2%.

All of which is hard to reconcile with the reported 4.7% increase in the cost of packaged holidays. That’s not the message that’s coming across from the travel agents but it’s what the Central Statistics Office surveyors found. So your foreign holiday may cost more this year than it did last year.

It’s possible to see justification for some prices increases. For instance, while childcare costs are up 6.4% on last year that may be due to increased insurance costs and an inability to reduce wages below what may already be minimum rates. Canteen meals have gone up by an average of 6.7%. Could that be due to cut-backs in employer subsidies?

Primary and secondary education is free for most people but those who pay have experienced a 7% plus increase in fees over the past year. Private primary school fees are up 7.6% while secondary school fees are up 7.1%. That seems to be more than could be justified by any increase in teachers’ pay or, indeed, by any increases in other costs.

It’s obvious that our regulators and consumer protection agencies can’t afford to take their eyes off the ball simply because consumer prices are, on average, falling. The potential for rip-offs is as strong as ever.

The National Consumer Agency might start by looking not only at some of those price developments mentioned above but also at the trend in grocery prices in recent years. It’s only a few years since the Agency backed the case made by the supermarkets and others that the ban on below cost selling actually worked against consumers by keeping prices artificially high.

Remove the ban, they said, and the price of these items would fall. It hasn’t happened. These latest CSO figures show that the price of those grocery items that were subject to the ban have risen by a sharp 8.6% since December 2006 while the price of other grocery items have gone up by less than a half of one per cent.