Central Bank teams overseeing lenders were so stretched before the financial crisis that much of their work involved “reactive supervision” rather than the intrusive model subsequently adopted, a senior regulator told an ongoing Irish Nationwide Building Society (INBS) inquiry.

Acting head of banking supervision Yvonne Madden, who led a team that supervised INBS in the run-up to the 2008 crash, said on Tuesday that there were about 50 regulators in charge of domestic and overseas-owned banks with combined balance sheets of €1 trillion before the crisis. While the size of the sector has subsequently shrunk by half, the number of supervisors has increased to 170, she said.

Still, Ms Madden said regulators had been sufficiently concerned about controls and governance in INBS in late 2003 to increase the minimum level of capital it was required to hold to 10 per cent of risk-weighted assets, compared with 8 per cent for most other lenders in Ireland at that time. Ms Madden said that was a “quite stringent” requirement at that time.

Ms Madden is the 19th witness to give evidence since public hearings began last December into an inquiry into whether four former executives at the now-defunct lender participated in the commissioning of seven regulatory breaches between August 2004 and September 2008.

The four are INBS’s former managing director, Michael Fingleton; his finance director John Stanley Purcell; one-time head of commercial lending Tom McMenamin; and Gary McCollum, who once headed INBS’s UK lending from a Belfast base.

Credit committee

The inquiry has focused to date on one alleged contravention, that its credit committee had failed to live up to its terms of reference. The inquiry has heard from multiple witnesses that the committee had not considered – as required – large commercial loans in arrears or deemed to be non-performing, the management of the society’s exposure to certain sectors and concentration of risk, or issues raised by internal and external auditors.

Ms Madden wrote to Mr Fingleton in November 2006 highlighting a number of issues that required action. However, the letter highlighted as a “medium priority” the issue of the credit committee reviewing quarterly credit review reports on the performance of large borrowers, as recommended by INBS’s external auditors at KPMG.

Ms Madden said this was because INBS had said in late 2005 that this had already started to occur that October and regulators were more concerned that the committee write up proper minutes on the discussions, rather than prove that it was doing what it had committed to do.

The inquiry has heard in recent months from a number of witnesses that the committee never considered such quarterly credit review reports.

“If there had been evidence that the credit committee had not been carrying out its function, it would have been a high priority,” said Ms Madden, who is to continue giving evidence on Wednesday.