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Matthew Elderfield is pushed out.

14 APRIL 2013

The directors are putting the champagne on ice down at the Court of the Bank of Ireland. Happy days are here again.

Before the board members open the bottles, they must still jump the little hurdle of the agm on Wednesday, April 24, but that will simply be the usual endurance test. The board will win the annual battle, crushing the small shareholders.

The Bank of Ireland has two reasons for celebration. First, the bankers' bete noire , regulator Matthew Elderfield, has just announced that he is on the way out of Ireland. Second, BoI boss Richie Boucher's old pal, Pat Farrell, has revealed that he is on the way in – this time to work as a super spinner for Boucher. The two guys are close: Boucher even attended a milestone birthdayparty for Pat a couple of years ago. Oh well.

The new broom is in retreat. The old guard is back. Elderfield, barely a wet day in Ireland, is heading home to the UK. Farrell, currently head of the Irish Banking Federation (IBF), has decided to give the Bank of Ireland the benefit of his talents, acquired during the property madness.

Farrell, who has spun so cleverly for Ireland's bankers for nine troubled years, who spun so well for Fianna Fail as general secretary for six years, who even spun for the EBS for a spell, is now about to spin for the Bank of Ireland.

Bank of Ireland will be run by three of the old guard. Governor Archie Kane will be the titular head. Archie has made a bit of a name for himself since becoming Governor. He has now been twice stripped of performance bonuses, due to losses in the payment protection insurance (PPI) scandal at his last employer, Lloyds TSB. Boucher, a miracle survivor of Bank of Ireland's property lending lunacy, remains chief executive. Farrell, ace banking propagandist and lobbyist during the bankers' years of shame, will be the main link with the media.

And we wonder why Matthew Elderfield threw in the towel?

We should mourn Elderfield's exit, not because he leaves having achieved so much, but because he leaves so much to be achieved.

Is there more to Elderfield's departure than the bland statements offered last week? Central Bank Governor Patrick Honohan's and Minister for Finance Noonan's responses to the shock news were tailored to reassure the markets.

Honohan affected no surprise: "Although it was evident to me that we were very likely to have Matthew with us for only a few years, it is sad that this period is now drawing to a close."

Perhaps. But wait, Matthew was on a short five-year contract. He cut and ran after a mere three. A little puzzling with so much still to be done to clean up the banks.

Noonan's tribute was similarly nonchalant. He claimed that Matthew was "leaving at a time when normality is returning to the financial system and the Central Bank is suitably prepared to deal with his departure in six months' time".

"Normality?" Ho-hum. The most ominous sign of "normality" is the recruitment of Archie Kane as Governor and Pat Farrell as chief spinner at the Bank of Ireland. Although that is hardly what Noonan meant.

While there will be celebration in the bankers' boardrooms at the departure of Matthew, there will be hangovers for Honohan and Noonan. Matthew was their mudguard against claims that banking reforms were too slow. He was the acceptable outsider, plucked from Bermuda and Britain. He had independent street cred.

So why did Matthew jump ship?

Honohan was partly right: everybody believed that Matthew was destined back in the UK, via Bermuda and Dublin. No one expected his return to happen so soon. The Central Bank statement says he will now pursue his "other interests", usually a euphemism for a guy being given the push. Matthew was, emphatically, not pushed. He jumped.

Matthew has been offered a job in the UK, probably in the private sector. He will command a fat salary, as the UK has recently radically changed its regulatory structure – an area where his expertise is highly marketable. A big bank or multinational would snap him up. Fair enough, but the timing is peculiar. He should be equally in demand in two years' time. But he does not want to wait.

Matthew has achieved much as regulator. He felled the mighty Sean Quinn, held his nerve and gained respect. He began on the long battle of taming the banks, but is less than half way there.

It is more likely that Matthew looked into Ireland's banking abyss in recent weeks and began to wobble.

He realised that the banks were far from out of the woods. Reassuring noises from Government that our mortgage arrears problem is under control do not wash. It is chaotic.

Worse still, Matthew himself had been put up front in setting targets for the banks to meet in solving mortgage arrears. They are most unlikely to be met. The mortgage problem is again being long-fingered.

And Matthew, above all, realises that the refusal of the banks and the Government to make proper provision for these bad mortgage loans on their books is a time bomb that will explode soon. The prevailing fiction – that the banks are solvent – will be blown to kingdom come the day that they are forced to recognise their real losses.

Matthew should not be left holding the parcel when that day arrives. If he stays he could be. Stress tests on the Irish banks will be held within six months. This time the tests may be above suspicion. If so, the testers may finally expose the fantasy that the loans can be repaid and that the properties providing the security are worth their padded values. They may recognise the hidden losses. They may force realistic provisions for bad debts.

If that happens government policy will be in tatters and Matthew's high reputation will be tainted. He might even become the fall guy. The consequence will be recapitalisation, an event that politicians and bankers, in denial about underprovisioning, have refused to contemplate. Matthew, almost alone, is not an ostrich.

Perhaps the retiring regulator was spooked by last week's unwelcome IMF report, insisting that Ireland's banks remain in a precarious state due to mortgage arrears? Or did he sense the panic in Europe (not in Ireland) that led to Friday's hurried decision to allow Ireland another seven years to pay our bailout loans?

Typically, he is keeping his counsel to himself. Some of his colleagues are not so reticent. Jockeying for his position has already begun. The favourite to succeed him, the feisty Fiona Muldoon from the Central Bank, told the Cantillon conference on Thursday that it would not be "clear if the Irish banks would need more capital until they had worked through their non-performing loans".

Wow. Central Bank code for "the Irish banks will soon need billions".

Matthew was right to quit while he was ahead. The man who steadied the ship has recognised the reality. Little has changed; while the banks are up the creek, bankers Boucher, Kane and Farrell are back in seventh heaven at the Bank of Ireland.

Shane Ross.Irish Independent.