A report titled “MISJUDGING RISK: CAUSES OF THE SYSTEMIC BANKING CRISIS IN IRELAND” has been released this week. It was comissioned by the last Minister of Finance – Brian Lenihan who set up the “Statutory Commission of Investigation into the Banking Sector in Ireland”
There was only one member of this Comission – Mr Peter Nyberg.
Surprisingly – the mandate of the Commission did not include investigating possible criminal activities of institutions or their staff.
Some of the highlights from the Nyberg Report:
“Ireland’s systemic banking crisis would have been impossible without a widespread suspension of prudence and care by those responsible for bank management as well as by those charged with ensuring responsible financial conduct.“ ..
“Although clearly affected by external conditions , the Irish crisis was in all essential aspects home-grown.” …..
“Public policies either came to support or tolerate increasingly frothy domestic growth financed by foreign debt routed through increasingly fragile Irish banks. This occurred despite a number of international examples of how similar developments had ended unpleasantly. These should surely have served as warning signs.”
On Auditors:
“They did not, however, generally report excesses over prudential sector lending limits to the Financial Regulator. Even if they had, it appears unlikely that anything would have been done about it as in general the Regulator was already aware of such limit excesses.”
On the Financial Regulator
“There were numerous instances of non-compliance with respect to banking regulations and guidelines which went unsanctioned by the Financial Regulator. In some cases (Anglo and INBS), where the FR did raise concerns, they sometimes led to little real change and there was little follow through by the FR. Bank management drew undeserved comfort from the acquiescence of the FR in relation to this non-compliance.”
“The real problem was not lack of powers but lack of scepticism and the appetite to prosecute challenges.”
On the Central Bank
“there are signs that a hierarchical culture, with elements of self-censorship at various levels, developed in the CB. Of course, this eventually made it even harder to address the increasing instabilities in the financial market.”
“If the CB management had identified or given sufficient weight to macro-economic vulnerabilities, it could and should have initiated discussions with the FR to ensure a deeper analysis of individual banks’ regulatory returns.”
On the Department of Finance
“The DoF also did not make any efforts to strengthen its own financial market expertise despite crisis management exercises in the EU having shown a need for it among finance ministries.”
On the Irish People
“The widespread consensus as well as the confidence, until the very last moment in late 2008, that everything would end relatively well points to the existence of a national speculative mania in Ireland during the Period, centred on the sale and acquisition of property. Warning signs were ignored as continuing economic stability was confidently assumed.”
“During much of the Period, Ireland was still seen as a success story that provided a largenumber of its inhabitants with self-esteem as well as rising incomes, wealth and welfare. Anybody seriously interfering with this process would expect to be publicly castigated as causing the very distress, loss and crisis that they would have been trying to prevent. Instead,by allowing the party and deal-making to continue, management, investors and public and private watchdogs participated in its positive but temporary gifts.”