Some light reading for the long Easter weekend.
It’s the report by Peter Nyberg, former International Monetary Fund economist and senior Finnish government official, into the Irish banking crisis.
(Click below for the full 172-page opus)
And it’s a sadly familiar tale. A quick taster:
Much points to the development of a national speculative mania in Ireland during the Period, centred on the property market. As in most manias, those caught up in it could believe and have trust in extraordinary things, such as unlimited real wealth from selling property to each other on credit. Even obvious warning signs went unheeded in the belief that the world had changed and that a stable economy was somehow automatically guaranteed. Traditional values, analysis and rules could be gradually less observed by the banks and authorities because their relevance was seen as lost in the new and different world. When it all ended, suddenly and inexplicably, participants had difficulty accepting their appropriate share of the blame for something in which so may others were also involved and that seemed so reasonable at the time.
Updates to follow.
Update — The Herd. The Silent Observers. The Enablers.
The Herd: Other Banks
Bank management and boards in some of the other covered banks feared that, if they did not yield to the pressure to be as profitable as Anglo, in particular, they would face loss of long-standing customers, declining bank value, potential takeover and a loss of professional respect. The few that admitted to feeling any degree of concern at the change of strategy often added that consistent opposition would probably have meant formal or informal sanctioning…
(Anglo profits. Heh. Losing professional respect. Heh.)
The Silent Observers: External Auditor
The problems in the Irish banks were building for several years before the crisis. These were problems of credit quality, sustainable lending practices and adequacy of internal procedures; they were not generally operational problems related to the IT systems or the mechanics of loan documentation. Auditors, therefore, did not feel that commenting on the implications of such business model problems fell within their proper remit. In fact, it may be questioned whether they even saw them as problems since very few others appear to have seen them either. On these issues, they appear generally to have stayed silent.
The Enablers: Public Authorities
The problems in Anglo and INBS in particular, were not hidden but were in plain sight of the FR [Financial Regulator] and the CB [Central Bank]. The funding strategy of Anglo was obvious from its balance sheet and the concentration to the more speculative part of the market was generally known. Similarly, INBS’s expansion into development lending was also clearly documented and the governance problems in the bank were widely known by the authorities…
Related link:
Nyberg report on bank crisis points to ‘herd mentality’ – Irish Times