Executives 'forgot even the basics of banking'
It is "almost unbelievable" that professional people running the Irish banks weren't aware of the risks they were taking during the property boom, the Nyberg report has concluded.
Bank executives were "totally unprepared'' for the property crash and funding problems that came along in 2008, the author said.
Executives forgot even the basics of banking and didn't seem to realise that loans were essentially risky assets, he added.
Executives across the system believed in 2008 that funding problems would quickly resolve themselves and the system would return to normal.
Boards had very little knowledge of how banks were actually run at grassroot level and they were not "unduly concerned'' about lax lending practices.
The evidence of this is the sheer scale of problem loans that later emerged, Mr Nyberg said.
In addition, corporate governance and the risk systems put in place by the bank executives were "inadequate''.
"It appears now with hindsight to be almost unbelievable that intelligent professionals in the banking sector appeared not to have been aware of the size of the risks they were taking,'' said Mr Nyberg.
Banks set aggressive targets for profits but the executives didn't seem to realise their whole business model was now changing and they needed to put new structures in to deal with this.
"Bank management in Ireland, like many banks elsewhere in the world, had forgotten the very nature of credit. Providing credit is not a sale of bank services -- it is the acquisition of a risky asset,'' added Mr Nyberg.
He said the focus should be on making sure the bank was covered for any losses on loans not on "expanding sales''.
"This apparent inability -- some might say unwillingness -- of Irish banks to remember this basic principle of banking was a major cause of the banking crisis in Ireland,'' said Mr Nyberg.
He said the banks valued sales skills rather than skills concerning analysing loans and risk in general.
Rules on lending became simply guidelines and limits on the size of loans also disappeared. Small loans became "enormous'' loans and increasingly loans were provided on an interest roll-up basis.
Loans also became increasingly complex and developers kept putting up less and less of their own money into the deals.
Mr Nyberg's report does not differentiate much between institutions, but lays heavy blame at the door of Anglo Irish Bank and Irish Nationwide, saying both lenders had totally inadequate systems to deal with the surging property lending levels at the tail end of the boom.
The banks also engaged in "group think" and "herd behaviour", said Mr Nyberg.
"Herding refers to the willingness of investors and banks to simultaneously invest in, lend to and own the same type of assets,'' said Mr Nyberg.
"Herding implies a lack of rigorous analysis by members of the herd,'' he said.
Mr Nyberg admitted yesterday that some people in the banks were prepared to give a different view, but there was only about one of these people per institution.
He added that these people were often worried about their position or losing their credibility internally if they spoke out.