The main reason for the Irish banking crisis was the “unhindered expansion” of the property bubble financed by the banks using wholesale market funding, the Nyberg Report has found.
The report of the Commission of Investigation into the Banking Sector, Misjudging Risk: Causes of the Systemic Banking Crisis In Ireland, more commonly known as the Nyberg Report has been considered by the Cabinet and published by the Minister for Finance this afternoon.
The investigation was commissioned by the government to establish exactly what happened to lead to the utter collapse of the Irish banking system in 2008. Every Irish financial institute has now been fully or partially nationalised.
The report states that “attendant risks” went undetected or were seriously misjudged and warnings and actions by relevant authorities were “modest and insufficient”.
Peter Nyberg, author of the report, does not allow for the majority of the blame of the banking collapse to be put down to the world-wide economic downturn. Although he does concede that the problems and failings in Irish banks and public institutions were similar to those in other countries.
The paper says, “notwithstanding these external events, the problems causing the crisis, as well as the scale of it, were the result of domestic decisions and actions”.
Banks set aggressive targets for profit growth and went about changing their business models and strategies to succeed but did not strengthen the corresponding governance, procedures and practices, the report stated.
The report doesn’t hold back on its criticism for the Irish banking system, stating that bank management had “forgotten the very nature of credit”.
“Providing credit is not a sale of bank services; it is the acquisition of a risky asset…This apparent inability, some might say unwillingness, of Irish banks to remember this basic principle of banking was a major cause of the banking crisis in Ireland.”
The Finnish economist said there was no doubt the crisis in Ireland was homegrown.
“It appears now, with hindsight, to be almost unbelievable that intelligent professionals in the banking sector appear not to have been aware of the size of the risks they were taking,” he said.
Michael Noonan is due to speak to the Dáil tomorrow about the government’s course of action following the publication of the Nyberg Report into the banking crisis.
Noonan said the report is a “comprehensive” account that provides a “thoughtful and multifaceted analysis” into the causes of the banking crisis.
The investigation, headed by Peter Nyberg, was completed in just six months.