Thursday 27 October 2016

'Banks could lend recklessly for property without fear of regulator' - Banking Inquiry

Philip Ryan and Kevin Doyle

Published 27/01/2016 | 02:30

The ‘soft landing’ predicted by former Taoiseach Bertie Ahern never materialised
The ‘soft landing’ predicted by former Taoiseach Bertie Ahern never materialised

Banks were able to breach spending limits on property deals without fear of consequences from the Financial Regulator during the boom years, the Banking Inquiry has found.

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The final report on the investigation into the collapse of the Irish economy, which will be published today, is understood to conclude that banks were able to recklessly lend on property deals as it was known the regulator would not take action.

The Financial Regulator and the Central Bank are sharply criticised in the report for failing to use their powers to intervene as the property market overheated and eventually collapsed.

The report finds both institutions had sufficient authority to identify risks and implement regulations, which could have lessened the impact of the financial crash, but relied instead on 'moral suasion'.

The regulators could have insisted that banks reserve a certain amount of capital to absorb potential losses stemming from a financial crash, the report found.

Today's publication of the Banking Inquiry report clears the way for Taoiseach Enda Kenny to dissolve the Dáil and officially begin the General Election campaign.

A Dáil debate will be held on the Banking Inquiry's findings over the next two days and it is widely expected Mr Kenny will call the election next week.

In the final report, it found Ireland's entry into the Troika's bailout programme was inevitable by October 2010 and ultimately determined by factors outside the Government's control.

The report is understood to conclude the European Central Bank (ECB) threatened to cut off all funding to the Government ahead of the bailout.


And the Oireachtas inquiry will report that the bailout deal - signed off in November 2010 - would not have been agreed if the then Fianna Fáil led government sought to burn senior bondholders who invested in the country's failed banks.

The report finds that the International Monetary Fund (IMF) was in favour of senior bondholders sharing the burden of the financial collapse ahead of the bailout, but the move was blocked by the ECB.

The Department of Finance is understood to face criticism for relying too much on external economic forecasts. It is also believed the report found the department did not carry out enough of its own independent analysis or research on the economic factors which resulted in the crash.

Government tax policies and property market incentives were found to be contributing factors to the collapse of the banking sector and housing market.

The report will say developers relied too much on bank debt and in many cases built strong relationships with bankers.

And valuations of sites and properties were not carried out before loans were agreed, even when they were substantial developments.

The inquiry team found that the economic collapse could not have been stopped after 2005.

While more could have been done to lessen the impact of the financial crisis, a 'soft landing' as predicted by Bertie Ahern and others, was never on the cards. It concludes that even before Mr Ahern went to the electorate in 2007 the damage was done.

The Irish Independent understands the report says that based on the level of lending that was done and the direction the property market had taken by 2005 the crash was inevitable.

It adds that the lending splurge continued in the intervening years leading to the situation where the Fianna Fáil-Green government made a decision in September 2008 to introduce the bank guarantee.

Irish Independent

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