The main findings: no one event to blame as responsibility is spread far and wide
Published 28/01/2016 | 02:30
The Oireachtas Banking Inquiry spreads the blame for the economic crash far and wide, with the banks, developers, regulators and legislators all shipping criticism.
One of the main conclusions was that no one single event or decision led to the failure of the banks, but rather it was the cumulative effect of decisions over a number of years.
Here are the key findings:
Banks, traditionally funded by customer deposits, became over-reliant on wholesale markets and the liquidity risk was not recognised.
The arrival of foreign banks triggered new and aggressive lending due to increased competition for customers.
Exposures from poor commercial property lending ended up threatening not only the viability of individual banks but the financial system itself. Internal auditing was not fully utilised in some key risk areas.
The banks broke lending limits on property without fear of any consequence from the Financial Regulator.
Many developers were heavily reliant on bank debt, adopting a business model where the banks bore all the risk. This was sometimes done through 100pc financing.
Property or land valuations were not carried out in all cases, even in the case of some large developments.
Relationship banking, where some developers built strong relationships with particular banks, became a part of the banking system.
The Central Bank and the Financial Regulator
Both the regulator and the Central Bank had sufficient powers to intervene with the banks. They could have required them to hold additional capital to absorb losses in the event of a financial crisis.
Both the Central Bank and the regulator were aware as early as 2003 of the increased reliance the banks were placing on the property sector, but they failed to intervene decisively. The absence of interventions directly contributed to the crisis.
Banks were allowed, through the inaction of the regulator, to breach lending limits on property.
If it had intervened, this may have reduced the impact of the eventual fall in asset values.
No evidence was provided that the Central Bank did any robust research or analysis to back up its assertion that there would be a "soft landing" in the property market.
The Department of Finance
The department relied on Central Bank reports and did not carry out adequate independent analysis of the risks. It was also too reliant on external agencies such as the IMF, OECD and the European Commission for economic forecasting.
The Government and the Oireachtas
Policies reducing direct taxes, such as those on income, contributed to a fundamental imbalance in government receipts. But this was not recognised until the crisis hit.
The Government was not sufficiently concerned about this imbalance due to increases in property-related tax revenues, such as stamp duty and capital gains tax. Severe overheating of the property market from 2003 to 2007 could have been mitigated through the abolition or reduction of property tax incentives.
All of the main political parties, whether in opposition or in government, advocated reducing taxes and increasing public spending in the years leading up to the crisis.
Although the IMF favoured burning bondholders, this was blocked by the European Central Bank (ECB). There would have been no Troika bailout if losses were going to be imposed on senior bondholders.
A letter from the ECB to then Finance Minister Brian Lenihan threatened that it would not continue emergency liquidity assistance support for Irish banks if the Government did not enter a bailout programme.
The withdrawal of this assistance was used as an explicit threat to prevent the Government from burning bondholders.
The ECB's position contributed to the inappropriate placing of significant banking debts on Irish citizens.