Reports outline serious banking failures

[onestepbehind]

rte.ie/news/2010/0609/banks.html

The report of Central Bank Governor Patrick Honohan says the system of regulation was characterised by excessive deference to the banks and timid responses when problems were found.

The Governor said inspections discovered numerous problems with the banks, but the regulator did not follow up with rigorous actions that could have headed off the banking crisis.

He said the collapse of Lehman Brothers did not cause the Irish banking crisis.

[ncallanan]

Reports now available here:

bankinginquiry.gov.ie/Reports.aspx

[jmc]

The money quotes on Anglo…

Some of the parameters of a guarantee scheme had already been aired in discussions
over previous days. These had to be finally decided now. One issue was the coverage
of the guarantee. Apart from exclusion of shareholder funds, the question arose as to
whether or not to include subordinated debt. Given that the whole point of
subordinated debt is to be a form of risk-absorbing capital, and as such is sold as being
explicitly more risky than senior bonds, it would have been reasonable to argue that
subordinated debt holders should not be exempt from possible losses; as far as can be
determined, no guarantee offered by any other government during the crisis covered
such risk-bearing liabilities. The note prepared the previous weekend by the Merrill
Lynch advisers had explicitly envisaged exclusion of dated subordinated debt from the
coverage. The banks might benefit from inclusion, to the extent that their ability to
issue new subordinated debt in the future would be hampered otherwise.156 **It was
apparently also argued that, since many of the subordinated debt bond holders were also
holders of Government Paper, their exclusion could adversely affect Ireland‘s debt
rating. **There was also concern that anything short of a comprehensive, simple to
understand concept might cause confusion when markets opened and undermine the
effectiveness of the Government‘s action. CBFSAI representatives did not challenge
these propositions. In the event, it was decided to include dated, but not to include
undated (perpetual) subordinated debt.157

My emphasis. The echo of the voices of the unexplained men in the corridors that night…

Other quote…

12 In the case of Anglo Irish Bank, management was seen by at least FR staff as perhaps ―slick and
buccaneering‖ but not as presenting a large or imminent risk. Although it became quite clear to top FR
decision-makers that senior Anglo figures were well-liked in political circles, and it cannot be excluded
that this played a part in their subsequent continuation in office for some months after September, there
was, until very late in the day, no perceived need to take regulatory action against them. The central
management figure in INBS was seen as an overly dominating figure that needed to be surrounded by a
stronger governance structure. While it was understood by all that he was politically well-connected, the
failure to resolve the issue is not attributed by anyone involved to his having a privileged status. While
unconscious factors may have been at work, FR management and directors agree that there is no evidence
of political representations being made on his behalf aimed at influencing regulatory decisions.

My emphasis. Another Mandy Rice Davis moment I think. Well they would say that, would nt they.

[genki33]

“…factors may have contributed to the crisis but were not fundamental. Nor was the failure of Lehman Brothers decisive”

[Ivor_Lot]

From the report:bankinginquiry.gov.ie/Preliminary%20Report%20into%20Ireland%27s%20Banking%20Crisis%2031%20May%202010.pdf

Ireland’s banking crisis bears the clear imprint of global influences, yet it was in crucial ways
“home-made.”>>>>>>>>>>>>>>>>>>>>>>>>>>

Budgets that were strongly counter-cyclical could have helped to moderate the boom, and
would also have created fiscal space to cushion the recession when it came. But budgetary policy
veered more toward spending money while revenues came in. In addition, the pattern of tax cuts left
revenues increasingly fragile, since they were dependent on taxes driven by the property sector and
by high consumer spending. Ireland was also unusual in having tax deductibility for mortgages, and
significant and distortive subsidies for commercial real estate development, yet no property tax

[Duisigh]

Lads - we need NEW news; there is nothing we didn’t know here ?

[Ivor_Lot]

@Duisigh

Lads - we need NEW news; there is nothing we didn’t know here ?

I agree. An excercise in stating the obvious however Cowen has up to now denied all responsibility. This clearly states otherwise in bald terms. No doubt though he will cherry pick and spin otherwise.
Nontheless, nothing to see here really. This govt. should have been gone ages ago. The fact that it hasn’t is proof that we don’t have ANY accountability and the corruption continues. The Greens could pull the plug any time but they won’t. Yet portray themselves as honest brokers.

[yoganmahew]

It’s nice to have it confirmed. As jmc emphasises, Anglo was bailed out to support a small cabal of its bondholders. A similar story probably exists for existing debt holders of the other banks. The fact is that the state would have a lot more credibility if it had only backed new bond debt and deposits. It would be in a position to extend that without much in the way of EU scrutiny.

In the meantime, the insiders have sold into the bounces or the ill-conceived buy-back schemes and run off with their loot. The taxpayer is picking up their tab, but at least we get to watch them spring back to their proper positions on Ireland’s rich list.

By the way, NAMA is a whole different matter. This is about the imperial forces who shaped the guarantee.

[Duplex]

Read it and weep.

The weaknesses of Irish banks were not caused by the interruption in the flow of cheap money from abroad, with Anglo Irish Bank and Irish Nationwide Building Society “on the road towards insolvency” before the collapse of Lehman Brothers.

Central Bank and regulator had an “unduly deferential approach to the banking industry” according to Honohan.

“Intrusive demands” from regulator staff “could be and were set aside after direct representations were made to senior regulators”.

Central Bank’s expectation of a “soft landing” in property market was a “triumph of hope over reality”.

“The banks were naturally prone to over-optimism and even (later) denial” – Honohan

irishtimes.com/newspaper/bre … ing54.html

[jmc]

@Duisigh

Lads - we need NEW news; there is nothing we didn’t know here ?

This is news. Just make a list of the choices quotes from the report and every time a FF’er or VI makes their usual bullshit excuses just quote the relevant quote from the official ministers report back in their face. The report is just a slightly politer and more judicious version of what has been discussed here over the last few years.

What we have in the report is a whole armory of smoking guns and if the supporting material was released enough evidence to put a lot of people behind bars in any normal country.

[yoganmahew]

@jmc

if the supporting material was released enough evidence to put a lot of people behind bars in any normal country.

Or at least a good wigging… with extreme prejudice. Maybe even a wedgie. Or a chinese burn…

[jmc]

@yoganmahew

@jmc

if the supporting material was released enough evidence to put a lot of people behind bars in any normal country.

Or at least a good wigging… with extreme prejudice. Maybe even a wedgie. Or a chinese burn…

I’m sure wedgies are unconstitutional…

[Duisigh]

It’s enshrined in Article 45.2.vi

[everybody_knows]

@jmc

@Duisigh

Lads - we need NEW news; there is nothing we didn’t know here ?

This is news. Just make a list of the choices quotes from the report and every time a FF’er or VI makes their usual bullshit excuses just quote the relevant quote from the official ministers report back in their face. The report is just a slightly politer and more judicious version of what has been discussed here over the last few years.

What we have in the report is a whole armory of smoking guns and if the supporting material was released enough evidence to put a lot of people behind bars in any normal country.

We could have 5,000 smoking cannons and it would would not make the slightest bit of difference . At the end of the day Irish people have a victim mentality . They expect to be treated like fools . It was Lehman Brothers fault , with their testicles everywhere , small open economy and whats the other one that they use ? Is it ’ international factors ’ or international events ?

When a sitting Taoiseach can account for some unexplained cash as having come from a win on the horses and then go on to explain how he had no bank account , well then anything is possible . And that would include the next couple of generations becoming debt slaves .

[Steaks]

@everybody knows

We could have 5,000 smoking cannons and it would would not make the slightest bit of difference . At the end of the day Irish people have a victim mentality . They expect to be treated like fools . It was Lehman Brothers fault , with their testicles everywhere , small open economy and whats the other one that they use ? Is it ’ international factors ’ or international events ?

When a sitting Taoiseach can account for some unexplained cash as having come from a win on the horses and then go on to explain how he had no bank account , well then anything is possible . And that would include the next couple of generations becoming debt slaves .

How many Lehman brothers are there?

[bluesberry]

@Steaks

@everybody knows

We could have 5,000 smoking cannons and it would would not make the slightest bit of difference . At the end of the day Irish people have a victim mentality . They expect to be treated like fools . It was Lehman Brothers fault , with their testicles everywhere

, small open economy and whats the other one that they use ? Is it ’ international factors ’ or international events ?

When a sitting Taoiseach can account for some unexplained cash as having come from a win on the horses and then go on to explain how he had no bank account , well then anything is possible . And that would include the next couple of generations becoming debt slaves .

How many Lehman brothers are there?

Number of testicles divided by 2.

[jmc]

@everybody knows

@jmc

@Duisigh

Lads - we need NEW news; there is nothing we didn’t know here ?

This is news. Just make a list of the choices quotes from the report and every time a FF’er or VI makes their usual bullshit excuses just quote the relevant quote from the official ministers report back in their face. The report is just a slightly politer and more judicious version of what has been discussed here over the last few years.

What we have in the report is a whole armory of smoking guns and if the supporting material was released enough evidence to put a lot of people behind bars in any normal country.

We could have 5,000 smoking cannons and it would would not make the slightest bit of difference . At the end of the day Irish people have a victim mentality . They expect to be treated like fools . It was Lehman Brothers fault , with their testicles everywhere , small open economy and whats the other one that they use ? Is it ’ international factors ’ or international events ?

When a sitting Taoiseach can account for some unexplained cash as having come from a win on the horses and then go on to explain how he had no bank account , well then anything is possible . And that would include the next couple of generations becoming debt slaves .

I know. But a couple of dozen suitable quotes from report at least simplify the process of talking to a brick wall.

FF / VI apologist: Usual Blah Blah…
Self: suitable quote from report…
FF/VI apologist: sez who?
Self: the Finance minister of the government that has been in power since 1997…
FF/VI apologist: the usual pointless cute hoor rejoinder…

If nothing else it should make such situations a little simpler and less stressful. Of course at least 40% of the electorate are brickwalls but unless you can come up with a stroke to disenfranchise those 40% it will be business as usual until the whole edifice collapses and outsiders are brought in to clean up the mess and start putting the cute hoors in jail. Stranger things have happened.

[catbear]

A good chunk of Irish society still think that what you have is what you hold.

Ok, so this is the end of the phony war, no NAMA for the people etc…

It really feels like this society sees democracy as a competition to see who gets to rape the taxpayer next.

[BoyRacer]

From Lenny’s letter…

At the broadest level, the causes of the difficulties in the banking sector in Ireland are similar to difficulties that have been experienced in the banking and wider financial sectors internationally. The Government is therefore of the view that your report should consider the international economic and financial environment, and indeed any broader social developments, which provided the context for the recent crisis in the banking sector and that it should have regard as appropriate to existing reports on the banking system, such as the de Larosière and Turner Reports. However, you will understand that a central element of the report is to identify factors specifically pertaining to the Irish banking system which exacerbated the impact of the international financial crisis for Ireland.

Here are the reports referred:

The high level group on Financial supervision within the EU → ec.europa.eu/internal_market/fin … ort_en.pdf

The Financial Crisis and the Future of Financial Regulation Lord Adair Turner, FSA - Part I → besprent.com/ec_turner_pt1_v1.htm

The Financial Crisis and the Future of Financial Regulation Lord Adair Turner, FSA - Part II-> besprent.com/ec_turner_pt2_v1.htm

There is a lot of verbiage and waffling in the Max Regling preliminary report, but basically he politely calls the regulators an incompetent bunch of muppets who should not be trusted to organise a pissup in a brewery.

To summarise, the response of supervisors to the build-up of macrofinancial risks in Ireland’s banking system was the opposite of hands-on or pre-emptive. Globally, this was to some degree a product of the times. Domestically, moreover, there was a socio-political context in which it would have taken some courage to seem to prick the Irish property bubble. Even so, there are clear examples in other countries where supervisors acted to stem the tide, and this is what lacked so notably in the Irish case. Moreover, the financial regulator in Ireland was not called upon to deal with technically complex problems. Ireland’s banking exuberance was a straightforward property bubble, compounded by exceptional concentrations of lending for real estate – and notably commercial real estate – purposes. Depending in part on the results of the parallel report, this is an area for further investigation to determine what degree of censure is warranted for such clear failures of supervision. However, it would seem that any macrofinancial failings must also be laid in part at the door of the central bank, which had a near monopoly on economic expertise in the two-headed institution.

[What_Goes_Up]

Am I missing something?

Where was the serious banking failure?

None of the banks went bust, they all got a gilt-edged guarantee and a bailout of their gambling losses.

Sounds like a good day at the office to me.

Maybe Patrick Honohan should have approached his task from a “How banks really work” point-of-view:
nytimes.com/2009/03/11/busin … hardt.html