Emmet Oliver: Belief that Irish banks had enough capital was plain wrong
Apart from bank regulators in Canada and Spain, virtually every other regulator in the western world failed to stop the financial crisis from infecting their financial system.
But some performed worse than others and Ireland's regulators were among the worst. Unfortunately a new report on financial regulation here by the Comptroller and Auditor General (C&AG) fails to do justice to this staggering level of failure.
For example, by the end of next year losses on banks' loan books could reach €50bn, which is almost a third of Ireland's entire GDP.
When measured by the size of our economy, Ireland's banking failure is among the worst in the world and both the Central Bank and the Financial Regulator must share at least some of the blame. Unfortunately the C&AG opts for rather soft language to describe this failure, talking about "shortcomings in the regulation of financial institutions".
Its solutions for these "shortcomings" are also rather meek. For example, one of its chief recommendations is that the Financial Regulator should provide an "annual statement" to the Dail on its work.
Of course there were plenty of statements in the lead up to the financial crisis too, but the problem was a lack of action.
For example, the former governor of the Central Bank, John Hurley, used to issue regular financial stability reports talking about the dangers of a property bubble, but neither the banks nor the Government ever really reacted to them.
The C&AG's report does point out that back in 2006 the regulator was becoming aware of "the increasing risks facing the financial sector", but its views were confined to a rather obscure Strategic Plan, which presumably wasn't bedtime reading for most bank executives, or indeed politicians. The C&AG report does acknowledge that some steps were taken between 2004 and 2008, but they were clearly inadequate.
Among the steps taken was forcing the banks to retain more capital to absorb potential losses on high loan-to-value mortgages. But the real problem was commercial property loans and the proper actions were not taken in this area, the report acknowledges. It's worth remembering that the Regulator was in denial about how bad things were even by October 2008, more than a year after the Northern Rock crisis.
In that month Patrick Neary made a startling comment when he said: "I believe the Irish banks are more than adequately capitalised."
We now know this was not only wishful thinking, but just plain wrong.