The report on the causes of the banking crisis has found that fiscal policy, bank governance and financial supervision left the Irish economy vulnerable to a deep crisis, with costly and extended social fallout.
The report by international banking experts Klaus Regling and Max Watson says that while the Irish banking crisis bears the clear imprint of global influences, it was in crucial ways a 'home-made' crisis.
Read the full Regling & Watson report here
Read more on the Honohan bank report here
Read the full Honohan report here
Mr Regling and Mr Watson says that fiscal policy heightened the vulnerability of the economy. Their report states that budgetary policies veered more towards spending money while revenues came in instead of creating policies which would have cushioned the recession when it happened.
They also note that the pattern of tax cuts left revenues 'fragile', since they were dependent on taxes driven by the property sector and by high consumer spending. Ireland was also unusual in having mortgage tax reliefs and 'extravagant and distortive' subsidies for commercial property development and no property tax.
The report also says that bank governance and risk management were weak - in some cases disastrously so. Credit risk controls failed to prevent severe concentrations in lending on property, especially on commercial property - as well as high exposures to individual borrowers and a serious overdependence on wholesale funding.
The report says it appears that internal procedures were overridden, sometimes systematically. It also says that bank supervisors in Ireland were not called upon to deal with technically complex problems. 'Ireland's banking exuberance indulged in few of the exotic constructs that caused problems elsewhere,' the report says as it calls the country's property bubble a 'plain vanilla' bubble.
Depending on the results of the Honohan report, Mr Regling and Watson says this is an area for further investigation to determine what degree of censure is warranted for the failures of supervision.
The authors of the report say the supervisory problems must be seen in conjunction with the absence of forceful warnings from the central bank on macrofinancial risks. They say that domestic financial stability reporting by the central bank failed to sound alarm bells loudly.
They said that while the central bank noted worrying features, it did not trace their interactions vividly or warn how severe the emerging risks to bank soundness and ultimately to the living standards of the ordinary person would be. They add, however, external surveillance sources fared little better.
'Official policies and bank governance failings seriously exacerbated Ireland's credit and property boom, and depleted its fiscal and banking buffers when the crisis struck,' the report states.
