Legislation is due to be introduced shortly by minister Brendan Howlin designed to facilitate a parliamentary inquiry into the Irish banking crisis. It is almost five years since the collapse of the banking system was triggered at the end of September 2008, and it is clear from recent Central Bank pronouncements that the end is not yet in sight.
Banking crises are common occurrences around the world but the Irish variant has some distinguishing features. Every significant bank got into difficulties; all had to be rescued either by the Irish State or by their foreign owners; and the State itself lost its financial independence, forced from the market into reliance on emergency loans from the EU and IMF.
The resultant economic downturn has added 10 per cent to the unemployment rate with no signs of early recovery. In terms of fiscal cost to future generations of taxpayers, the Irish banking bust is one of the largest that has ever occurred anywhere in the world.
There is one further unique feature: no comprehensive inquiry into the genesis of the Irish banking bust has yet taken place. The policy response to the crisis has been played out partly in public, the disastrous blanket bank guarantee of September 29, 2008, resulting in heavy defeat for the government parties at the 2011 general election. To that extent, at least, the political leadership has been held accountable. But too little has been revealed about the State's dealings with the European Central Bank and about decision-making regarding the treatment of subordinated and unguaranteed bondholders.
Moreover the limited official inquiries undertaken to date have shed no light whatsoever on what happened within each of the failing banks in the years leading up to the eventual bust.
The Irish banks went bust in a very old-fashioned way: they incurred enormous loan losses through their traditional business of lending, mainly in Ireland. There were other errors, including mismanagement of capital adequacy and liquidity. The loan losses arose through excessive and apparently unconscious risk-taking, as well as concentration of risk in narrow areas, particularly construction and property. There were no modern or hi-tech adventures into derivatives or exotic investment banking territory, no currency speculation. The Irish banks went bust the way banks went bust in the 19th Century: through lending money to people who failed to pay it back.
It is well understood that there were comprehensive failures in bank supervision, and one of the three official reports, the one prepared by Central Bank governor Patrick Honohan, portrays a dysfunctional supervision system during the bubble years. But Honohan was not charged with reviewing what went wrong within each bank.
His report states: "There are legal constraints on the detail which can be published on individual credit institutions. The report is bound by overriding constraints under EU law, and general central banking and regulatory practice, as reflected in Irish Law in Section 33 of the Central Bank Act, 1942 (as amended) which prohibit . . . the disclosure of confidential information in relation to identifiable individual credit institutions."
A second official report, prepared by Klaus Regling and Max Watson, contains an extensive review of the international and domestic economic background to the crisis as well as a concise summary of the extent of the Irish credit explosion. The report, however, was not intended to consider the internal procedures and decision-making within each of the failing banks.
The third official inquiry yielded the Nyberg report. It focused on the system failure rather than the decision-making of the failed banks. Nyberg wrote: "The Commission decided at an early stage that, in so far as possible, this report should not contain evaluations or details of named individuals, their actions and inactions. The Commission relied on three important considerations for this decision.
"Firstly, the Commission's terms of reference strongly stress the need to explain why systemic failures happened. Obtaining meaningful information on this is much easier if individuals do not, at the same time, have to worry about how this information will affect their public image.
"Secondly, the Commission did not wish to prejudice, in any way, any possible future investigation into the actions of any individual. Finally, the Commission considered that, by virtue of their position, it was already clear that decision-makers and leadership in the various institutions must carry a large part of the immediate blame for the crisis."
After three limited official reports, each valuable in its own way, there has been no bank-by-bank inquiry into what went wrong. None of the banks has seen fit to report even to their own shareholders.
For the record, those who held shares in AIB, Anglo, Bank of Ireland and Irish Permanent have lost 100 per cent, 100 per cent, 99 per cent and 100 per cent of their money respectively, without the courtesy of an explanation.
In the United Kingdom and in the USA, bank failures have been subjected to full reporting, including the allocation of responsibility, by parliamentary and regulatory bodies and by court-appointed investigators, all freely available on the internet. Irish taxpayers, burdened by heavy bank creditor bailout costs, can learn all they wish to know about bank failures in other jurisdictions, but not, thus far, in Ireland.
There have been two revealing books, one on Anglo by Simon Carswell and one on Irish Nationwide by Tom Lyons and Richard Curran, thorough journalistic efforts making the best of available information. But journalists cannot compel witnesses or demand records, and their best efforts cannot compare with a proper official inquiry.
The absence of accountability for the banking collapse has had real economic consequences. Public willingness to accept unavoidable cutbacks and tax increases is diluted by the perception that bankers, regulators and public officials have not been asked to account publicly for their role in the affair. The authority of the Government is weakened and the credibility of snake-oil purveyors enhanced. It is entirely possible that some of the 'won't pay' mortgage defaulters find some moral justification in the failure to account for the banking debacle.
The Government's inability to carry a referendum restoring the powers of parliamentary inquiry following the Abbeylara judgement means that, barring a new referendum, the parliamentary investigation may be unable to draw conclusions about where responsibility lies. That referendum was lost after a late intervention by a group of barristers who exploited expertly the Government's complacent failure to campaign effectively for a Yes vote.
Mr Howlin's bill should be judged on its merits when it appears. If it results in a constrained and partial inquiry followed by a heavily lawyered report, this could sour the public mood even further.
Unless it promises to meet the clear recommendations for further inquiry in the Regling/Watson report, the Government should consider a second referendum to re-empower the Oireachtas. Here is what they proposed: "Overwhelmingly, the most important issues to investigate are those that seem to have involved very serious specific breaches of corporate governance. It seems important to identify how such very serious governance failures were initiated; how and why internal checks and balances failed in restraining the management of certain banks; whether there were failures of auditorial vigilance; whether supervisors knew of the events (and if not, why not); and why the response of supervisors was not more forceful.
"It is relatively clear also that supervisors were not in a position to warn top policy-makers of the major asset risks or of some crucial problems of governance in banks, on the eve of the crisis – a failure that had very serious implications – but the circumstances surrounding this deserve fuller investigation to confirm the picture.
"The second set of issues deserving investigation . . . concern breakdowns in risk-management approaches and, in some cases, the unwarranted or excessive overriding of internal guidelines. At the broad level of risk management and governance in the Irish financial system, it appears particularly surprising that there was not a stronger reaction within the banks themselves and among supervisors to lending trends that saw a progressive build-up of concentrated loan exposures to and within the commercial property sector.
"It would be valuable to establish the reasons for the absence of reaction, within banks and in the regulatory authority, since this was a critical factor that contributed to the overall level of risk exposure in the system.
"Again, it should be established how and why internal checks and balances failed; whether supervisors perceived the risks; and why the response of supervisors was not more forceful."