However, Mr O’Connell did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developers.
“If the banks don’t reform adequately, it’s the shareholders who should be there to discipline them,” he said. “If they don’t do that, they take a hit, and they have taken a massive hit here.” He made his comments before the Oireachtas Enterprise Committee.
Mr O’Connell also told the committee that he believed the banks would begin to generate liquidity toward the end of this year, when NAMA is activated.
He was responding to a question from Sinn Fein’s Arthur Morgan, who also asked him why anyone should have any confidence in what he says, given the record of his organisation.
Mr O’Connell said the Central Bank was aware at the time of the risky behaviour of Irish banks.
But he claimed it was not the job of a banking regulator to prevent banks who made bad decisions from going to the wall. “No regulatory system can or should ensure that all banks should survive,” he said. “Banks that make bad decisions should pay the penalty and that’s what they’ve done.
“Despite the fact the media say the banks are being bailed out, the banks are not being bailed out.
“The banks’ shareholders have lost their shirt. Anglo-Irish shareholders hold nothing, the other banks have lost 90pc and that’s the way it should be.”
But the Central Bank moved last night to avert public uproar by insisting that Mr O’Connell was referring to large professional investors, rather than small shareholders.