Banking Inquiry: 'Senior managers at EBS taken in by developers' - ex director Tinney
The Bank Guarantee was “indefensible” a former non-executive director of the EBS has claimed.
Eithne Tinney also said that senior management at EBS were “taken-in by Ireland’s so-called developers and also by their professional and other advisors”.
She told the Banking Inquiry it was “indefensible for the government in September 2008 to in effect yield the sovereignty of this country in order to shore up a banking system that is entirely of and for itself and will never change”.
Ms Tinney accepted, however, that “many grave problems would have arisen if one or more banks had failed and that the full extent of bad debts were not known at the time”.
Referring to senior management being taken-in by developers, she said board members including herself were also taken in.
Although the EBS had been “cautious about joining the bandwagon” they emulated their peers.
“There was a sort of feeding frenzy as the banks clambered over one another to get a piece of the action, especially as new foreign banks had entered the market as competitors.”
Ms Tinney’s view of the bonus system within banks was “crazy”.
“You get a bonus for lending money out. There is no incentive to get it back in. Such a system encourages greed and recklessness. It is no wonder that banks go bust from time to time.”
The former director criticised the system of securitisation at the EBS where mortgages were packaged up into an asset and sold on to a new layer of investors who agree to pay a percentage of the normal value of the loans in return for interest so the money can be lent on again.
“It is ingenious in its way, as it is a system that seems to offer limitless working capital for a lending institution.
“But there is nothing to stop the new investors selling on their asset at a profit, and so on ad infinitum.”
Describing the system as having the “look of a pyramid scheme” she said at the time “I could not get the image out of my head of a shark eating its own entrails”.
She said as time went on she “became ever more doubtful of the fundamental banking concept of loans as assets and indeed of debts in any business as assets”.
She stressed that her statement to the inquiry referred to the period from December 2000 to April 2007 when she was removed from the board.
She was re-elected onto it in 2008 but said by that time there had been many changes and a new Chief Executive Officer had been appointed.
“Sadly, it emerged during the next three years that EBS was irrecoverable. I retired from the board at the end of my third three-year term in May 2011.”