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Questions the banking inquiry must answer

THE official documents on the banking crisis, which have now been released, paint a very unflattering picture of how the situation was handled by politicians, civil servants and regulators

With the total cost of the banking crisis now set to exceed €80bn how can be we prevent anything like this ever happening again? Dan White asks the questions that any banking enquiry must answer.

Q The latest batch of documents to have been released reveal that the Government was supposedly monitoring the worsening situation at the Irish banks from at least October 2007. In other words, almost a full year before it was forced to unconditionally guarantee bank deposits. So why then were the Government, the Civil Service, the Central Bank and Financial apparently taken completely by surprise when the crisis erupted at the end of September 2008?

Q The Department of Finance was the lead department in handling the banking crisis. The latest set of documents demonstrate yet again the paucity of in-house economic, financial and banking expertise at what is supposed to be the premier Government department. This forced the department to largely rely on outside advisors instead of being able to draw up its own plans to deal with the crisis well in advance. Why is the Department of Finance apparently unable to recruit and retain staff with expertise in these key areas?

Q The combined lending of the Irish banking system grew almost seven-fold in the ten years to the end of 2007. Deposits "only" trebled over the same period, forcing the Irish banks to borrow the balance, about €200bn, from overseas banks. This should have been enough to set alarm bells ringing at the Department of Finance, Central Bank and Financial Regulator. When did they become concerned at this explosion in bank lending and what, if anything, did they do about it?

Q At the same time as Irish bank lending was rising seven-fold a single bank, Anglo, grew its loan book more than twenty-fold. Did it occur to anyone in the department or the regulatory bodies that allowing Anglo to grow its loan book at an average rate of more than 30pc per year was not a good idea and that, if unchecked, Anglo's banking practices would contaminate the rest of the banking system?

Q It is now clear that the decision to save Anglo and the Irish Nationwide at the end of September 2008 was at least in part a political one. Was this the first time that overtly political considerations had been applied to decisions about the banking system? Were there earlier instances of the politicians getting their oar in? If so, when?

Q We now know that Anglo and the Irish Nationwide were hopelessly insolvent by the time the Government decided to unconditionally guarantee their deposits. Even at the time the Department of Finance was warning of an €8bn hole in Anglo's balance sheet, the actual hole has turned out to be at least five times greater. What advice, if any, did the Government receive on the advantages of saving Anglo rather than letting it go bust in September 2008?

Q The recently published documents demonstrate that the Government ignored the recommendations of its own advisors, Merrill Lynch, when deciding to unconditionally guarantee the deposits of the Irish banks. What advice was it acting upon when it decided to guarantee the banks' deposits and when, if ever, will such advice be made public?

Q In 2002 the Government overhauled the system of financial regulation. Ignoring the advice of its own McDowell Committee, which recommended stripping the Central Bank of its banking supervisory functions and transferring them to an independent body, the Government instead established the Financial Regulator as a sort of semi-detached offshoot of the Central Bank.

To what extent did this unwieldy structure, the administrative equivalent of a two-headed pantomime horse, contribute to the subsequent debacle?

Q The collapse of the Irish banking system represents by far the worst regulatory failure in the near-90-year history of the independent Irish state. One early consequence has been the effective loss of our fiscal independence, with Brussels now having the right to vet our national budgets in advance.

To be credible any enquiry will have to apportion blame. Who were the guilty men and women, politicians and officials, whose sins of omission or commission beggared this country for a generation or more?