Former Central Bank director general Liam Barron decided to exclude warnings about the overvaluation of property from a 2007 financial stability report, the Oireachtas banking inquiry has been told.

Thomas O’Connell, who was assistant general director of the bank’s economic division and chief economist from 2005 to 2010, made the claim about Mr Barron in a clarification statement to the inquiry.

He previously provided oral evidence to the committee, which examined the State’s financial collapse, in June.

In his oral evidence, Mr O’Connell said the Central Bank had to “pull its punches” in relation to concerns about the economy despite indications of great difficulty ahead.

He further claimed it was his opinion as early as 2001 that “things were going crazy” and a “massive” property bubble had developed.

Financial stability reports, however, tended to include “reassuring” summaries that did not correlate with their data, he added.

In his clarification statement, Mr O’Connell, who joined the Central Bank in 1970 as an economist, says the three most senior people in the bank had the “final say” in amending the stability report before it was sent to the board.

“The most active of the three in this regard would have been Liam Barron, the director general and chair of the financial stability committee.”

It adds that there were “major concerns” in the economics area of the bank “with the continuing rise in property prices, and therefore there was a need to try to assess to what extent property prices were overvalued”.

Overvaluation

Mr O’Connell says that as far as he is aware, no consideration was given to remove the overvaluation estimates.

They were “arbitrarily” excluded, he says, “presumably on the grounds that, as property prices continued to escalate to unsustainable levels, the publication of large overvaluation estimates could lead to the bubble bursting”.

He then adds: “Liam Barron decided to exclude the overvaluation estimates from the 2007 FSR.”

While Mr Barron gave his own written statement to the inquiry which dealt with the evidence given by Mr O’Connell, it is understood he submitted it without sight of Mr O’Connell’s subsequent clarification statement.

It also says that Frank Browne, the Central Bank’s head of financial stability from 2003-2010, was responsible for co-ordinating or putting together the draft financial stability report.

“In keeping with the hierarchical nature of the bank, the amendments proposed by the top three executives in the bank would be incorporated into that draft before submitting it to the board.”

Mr Browne also submitted a statement to the banking inquiry in which he said the Central Bank misled the public about the frail state of Ireland’s financial system in the run-up to the crash.

He also told the inquiry that warnings issued by his team as far back as 2004 were ignored by the bank’s senior management.

The thrust of his 90-page statement was rejected outright by former bank governor John Hurley and other senior Central Bank figures from that time.

Warnings on the property bubble were not taken lightly, Mr Hurley insisted.