Belfast Telegraph

Financial mismanagement widespread, says Ireland's chief banker

By Brian Hutton

Banking chiefs, the government and the financial services watchdog were to blame for the Republic's economic meltdown, the Irish Government's chief banker has concluded.

Central Bank governor Patrick Honohan also rubbished the mantra that the collapse of Lehman Brothers in the US and the ensuing panic on financial markets sparked Ireland's downfall.

In one of two reports into the banking crisis, Mr Honohan 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.

The governor said bad lending choices and falling property values meant that at least two banks - Anglo Irish and the Irish Nationwide Building Society - were going to go bust anyway.

The report also found that:

  • A "comprehensive failure" of banking chiefs to stem a "credit-fuelled property market and construction frenzy" was central to the catastrophe.
  • The Irish government's budgetary mismanagement helped overheat the economy and "create a climate of public opinion... that the party could last forever".
  • The Financial Regulator was "timid" and "excessively deferential" towards the banks.
  • The banking watchdog did not rein in reckless lenders amid fears it would upset them and their apparent success.
  • The Central Bank and the financial regulator was unwilling to "spoil the party" by taking seriously the risk of a looming crash.
  • There was undoubtedly many other factors involved in the Central Bank's then ineffectiveness, including staffing and organisational problems, but these issues were not fundamental.
  • The failure of investment bank Lehman Brothers was not responsible for the crisis.
  • A cap on property lending would have "curbed the worst excesses" while the need for bigger capital requirements against risky loans would have "made a major difference".