Below is a series of observations from the report produced by Central Bank governor Patrick Honohan on the regulatory regime, Government policy and actions of bank management.
“It is clear that a major failure in terms of bank regulation and the maintenance of financial stability failure occurred” – Honohan
The failure was of a systemic nature rather than related to any one individual.
The weaknesses of Irish banks were not caused by the interruption in the flow of cheap money from abroad, with Anglo Irish Bank and Irish Nationwide Building Society “on the road towards insolvency” before the collapse of Lehman Brothers.
Honohan blames macroeconomic and budgetary policies for contributing to economic overheating. He says the Government relied to an “unsustainable extent” on the construction sector and other transient sources for revenue.
Other than the regulator, Honohan says the major responsibility lies with the directors and senior managements of the banks that got into trouble.
"It may also be the case that auditors and accountants should have been more alert to weaknesses in the banks’ lending and financial position”.
The regulator relied excessively on a regulatory philosophy “emphasising process over outcomes”.
Only a small number of staff within the FR were directly involved in prudential supervision of credit institutions – no more than two per major firm.
Central Bank and regulator had an “unduly deferential approach to the banking industry” according to Honohan.
“Intrusive demands” from regulator staff “could be and were set aside after direct representations were made to senior regulators”.
Central Bank’s expectation of a “soft landing” in property market was a “triumph of hope over reality”.
Banks did not have “reliable models, tested and calibrated on Irish data, which could credibly predict loan losses under varying scenarios”.
"The banks were naturally prone to over-optimism and even (later) denial" – Honohan
Sept 2008 bank guarantee was culmination of an intensive series of interagency meetings over the previous month.
Banking system faced collapse so “it is hard to argue with the view that an extensive guarantee needed to be put in place”.
Legislation to nationalise a troubled bank and/or building society had been in preparation for some time in September 2008.
Report says there is prima facie evidence of a comprehensive failure of bank management and direction to maintain safe and sound banking practices.
Corrective regulatory intervention for the system as a whole was “delayed and timid”, and a greater increase in capital requirements on risky loans implemented several years earlier would have made a major difference.