Members of the Central Bank of Ireland commission challenged the governor and other executives last month about rising costs at the organisation at a time when an era of super profits generated by it in the wake of the financial crisis is coming to an end.
Minutes published on Tuesday of a meeting of the commission, or board, on November 15th show that the bank’s core operating expenditure budget for next year is set to rise by 4 per cent to €371.7 million.
Bank executives forecast that pay costs will increase by the same pace, to about €200 million, while non-pay costs were set to increase by €11.9 million, or 16 per cent, mainly as result of general inflation. Meanwhile, the budget for investments in projects is set to rise by 37 per cent to €57 million, excluding cost incurred last year relating to developing an integrated campus in the Dublin docklands.
The minutes noted that members of the commission “recognised the challenging juncture” the bank was at, as it faces into a “downward trajectory in profits while demands were increasing”.
“There were concerns raised around adding fixed resources at a time when profits were falling and where costs could exceed income in the coming period,” the minutes said.
Post office quarrels / Drug dealing impacts city centre businesses
CEO of An Post David McRedmond joins Ciaran Hancock to discuss the ongoing row between An Post and the UK’s Post Office over the implementation of post-Brexit customs rules, which is resulting in thousands of online purchases being returned to British retailers. Later on, we hear from two Dublin city centre business owners, Stephen Kennedy of Copper+Straw cafe and Sean Crescenzi of Happy Endings restaurant. They speak about the impact that anti-social behaviour and drug dealing, in and around Aston Quay, is having on their businesses and the immediate and long-term solutions they would like to see implemented to address the issue.
“Members noted that there was an uncertain economic environment and there would need to be a very convincing case for embedded increased expenditure.”
The Central Bank has generated more than €23 billion of super profits in the 13 years since 2008, according to Irish Times calculations based on annual reports, driven by the response of central bankers in Dublin and Frankfurt to the near collapses of the domestic banking system and the euro, and a decade of anaemic inflation across the euro zone.
Some €18.4 billion, or 80 per cent, of the profits have been transferred to the exchequer over this period.
The profits were initially driven by interest on emergency loans to banks during the financial crisis. They have also been fuelled by multibillion euro gains on the sale of government bonds used in 2013 to refinance the bailout of Irish Bank Resolution Corporation (IBRC), interest on bonds acquired under European Central Bank (ECB) quantitative easing (QE) programmes, as well money made from charging commercial banks negative rates for excess deposits stored with the central bank.
However, 90 per cent of the bonds linked to IBRC, formerly Anglo Irish Bank and Irish Nationwide Building Society, have now been sold. Meanwhile, the rate of minus 0.5 per cent that the Central Bank had been charging banks in recent years for surplus deposits came to an end in July when the ECB started raising official rates. The Central Bank is now paying 2 per cent interest on deposits.
In addition, central banks in the euro zone will gradually start from next March to sell down the €5 trillion worth of bonds held on behalf of the ECB as the era of QE turns to quantitative tightening.
The minutes of the November 15th meeting said that the Central Bank governor, Gabriel Makhlouf, recognised the challenges faced by the organisation and committed to “focusing on long term commitments, including around ambitions to be able to demonstrate effectiveness and efficiency”, even as demands on the regulator were increasing.
