(Bloomberg) -- Ireland’s central bank chief warned bankers in one of the epicenters of the eurozone’s sovereign-debt crisis about the perils of joining a deregulatory wave looming on the other side of the Atlantic.
Speaking at a financial services gathering in Dublin, Governor Gabriel Makhlouf urged executives to be “sensible” in changes they might push for just as their US peers seek to capitalize on Donald Trump’s impending return to the White House.
“While in the short run our incentives may not align, in the long run they certainly do,” he told his audience. “Lower standards have greater costs than benefits” and “the trust and resilience we seek to provide is in the best interests not just of consumers and the wider economy, but also the sector and the system,” he added.
Loose standards were a key driver of Ireland’s financial crisis, which forced an €85bn sovereign rescue in 2010, and years of austerity. The embers of the bailout still burn despite its economic resurgence, including the state’s continued presence on the share register of one of the country’s biggest lenders, Allied Irish Bank.
“If trust is the true currency of this system, and resilience is essential to providing financial services through the cycle, then I hope it is equally clear that it is in both the economy’s and the sector’s interest that is well-run and well-regulated,” Makhlouf said.
While that view is the consensus reached in the years after the crisis, that’s now “at risk of slipping,” he added.
“Rather than progressing by securing stable growth, we risk regressing into the mistakes of the past,” Makhlouf said.
Recalling what went wrong in Ireland, the governor warned of the ultimated dangers to letting standards slip.
“Driving growth through ‘lighter touch’ financial regulation failed,” he added. “Rather than delivering better growth it led to one of the most growth destructive events of the last century.”
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