The banking crisis will be seen as a defining event in Irish history. Its dark cloud still lingers over every home in Ireland and many are still suffering from its impact today. Unemployment, emigration, unsustainable debt, negative equity and home repossession are among the legacies of the crisis. As the Celtic Tiger fell, our confidence and belief in ourselves as a nation was dealt a blow and our international reputation was damaged.
One description of this recent crisis was that it was a systemic misjudgement of risk; that those in significant roles in Ireland, whether public or private, in their own way got it wrong; that it was a misjudgement of risk on such a scale that it lead to the greatest financial failure and ultimate crash in the history of the State.
That is one part of the story. The failure to identify the potential risk posed to the overall financial stability of the State by the banking system is another key lesson which must be learned. Recognition must also be given to the lack of an overall framework, at a European level, for dealing with the financial crisis. The refusal to allow successive Irish governments to achieve burden sharing with senior bondholders undoubtedly increased the overall cost of the crisis for the Irish people.
Each crisis has at its origin a belief, that ‘this time is different’ or ‘this could never happen to us again.’ For the Inquiry to achieve its full value it must not just look at the past to learn what happened but it must also provide lessons that minimise risk into the future. These lessons must resonate with us, in order that we will be aware that it may happen again, should we start to believe that everything is different now.
The purpose of this Report is to set out the key issues surrounding the crisis, what has been done to respond to it and what remains to be done. There have already been a number of reports into the crisis, commissioned by Government and carried out in private. In this Inquiry, the Joint Committee went beyond previous reports. Its brief was to consider the political, economic, social, cultural, financial and behavioural factors and policies which may have impacted on or contributed to the crisis.
What sets this Inquiry apart is that it is the first time that the actions and decisions that visited the financial crisis on the Irish people have been examined in public, allowing us for the first time to hear the story, in their own words, from those who were involved. The Inquiry heard oral evidence from 131 witnesses over the Context and Nexus Phases. We heard from experts who placed Ireland’s crisis in a world context. We heard from those who were at the helm when Ireland ran aground, as well as from those who were in the engine room. The Inquiry also sought documents from the key players, including politicians, the banks, the Central Bank and the Department of Finance, and received over half a million pages as a result.
The Inquiry was asked to examine the reasons why Ireland experienced a systemic banking crisis. We considered evidence on relevant matters relating to:
as well as the preventative reforms implemented in the wake of the crisis.
We concluded that there was in reality two crises, a banking crisis and a fiscal crisis. These were directly caused by four key failures; in banking, regulatory, government and Europe.
The crisis in the banks was directly caused by decisions of bank boards, managers and advisors to pursue risky business practices, either to protect their market share or to grow their business and profits. Exposures resulting from poor lending to the property sector not only threatened the viability of individual financial institutions but also the financial system itself.
Even though they were aware of the changing behaviour in the banking sector, regulators did not respond fully to the systemic risk. In particular, the Financial Regulator adopted a principles-based ‘light touch’ and non-intrusive approach to regulation. The Central Bank, the leading guardian of the financial stability of the state, underestimated the risks to the Irish financial system.
The Government presided over a period of unprecedented growth in tax revenues, but adopted a fiscal policy where significant, long-term expenditure commitments were made on the back of unsustainable cyclical, construction and transaction-based revenue. When the banking crisis hit and the property market crashed, the gulf between sustainable income and expenditure commitments was exposed and the result was a hard landing laying bare a significant structural deficit in the State finances.
The almost universal adoption of the ‘soft landing’ theory until 2008, without any substantial test or challenge, must be regarded as a key failing for the Government, Central Bank and the Department of Finance; this theory was also adopted by many international monitoring agencies. The failure to take action to slow house price and credit growth must also be attributed to those who supported and advocated this fatally flawed theory.
The “night of the guarantee” has become a thing of myth. The idea of a guarantee was not conceived on a single Monday night in September 2008; Department of Finance documents show that it was considered as part of a range of options as early as January 2008. Decision-makers, however, were forced to decide on a course of action in the absence of accurate information about the underlying health of financial institutions; no independent in-depth ‘deep dive’ investigation of the banks had been commissioned by the authorities before September 2008.
Over the following two years, Ireland’s entry into a Troika programme of assistance became inevitable. The ECB nevertheless put the government under undue pressure to enter a programme, but also insisted that there would be no burden sharing with bondholders.
These were all actions for which the Irish people ultimately paid and are still paying a heavy price.
Even though the major decisions and events of the crisis, including the Guarantee and the Troika Programme, are a few years behind us, they cannot yet be consigned to history. This Report’s findings and recommendations show that lessons must be learned and applied. There is no certain formula to avoid another crisis but constant vigilance and early preventative action is critical.
This Report along with the oral testimony and documents submitted are the Joint Committee’s primary legacy. However there is another part to that legacy. As the first Committee to carry out an inquiry under the 2013 Act, we have road-tested the legislation and set out the framework for future parliamentary inquiries. The lessons we have learned from running this inquiry will serve future committees and we have made a number of recommendations in Volume 2 for changes to the legislation and for the running of future inquiries.
This is also the first time that documents relevant to all elements of the crisis have been collated and examined in one place at one time. In Volume 3, the Joint Committee has published all of the documentary evidence considered in preparing this Report. It is a permanent repository, which will be a public resource into the future long after the Inquiry has completed its work.
The Irish people voted in 2011 to retain the current Constitutional arrangements as they relate to Parliamentary Inquiries and it is important to acknowledge these constraints. The Banking Inquiry has proved that our public representatives have the ability to play a valuable inquisitorial role while respecting the judicial process. Our work has demonstrated that the Houses of the Oireachtas can hold a fair and impartial public inquiry. The Inquiry has been held in an open and transparent manner with proceedings broadcast on the internet, on television and radio, for all to see and hear. It has portrayed our National Parliament in a positive light with members from all parties and political affiliations working together on behalf of the Irish people.
I thank the members of the Joint Committee for their hard work and commitment throughout the Inquiry. The determination of all the members of the Inquiry to complete the task put before the committee is, I believe, unique in Irish political life. Despite varying party political affiliations all members participated fully and worked together in order to deliver the best report possible within the constraints of the Act and on time. However, although Deputies Pearse Doherty and Joe Higgins continued to remain as members of the Joint Committee, they were, in the end, unable to support the final report.
Committee members are the visible side of the Inquiry. Enormous credit is due to the staff of the Inquiry and to members’ staff for their hard work and dedication to making the Inquiry a success. They are exemplars of public service.
The Joint Committee would also like to acknowledge and welcome the co-operation we received from institutional participants and individual witnesses through their attendance at public hearings, preparation of written statements and provision of documents to the Inquiry. However, co-operation was not evident across the board and the Joint Committee is critical of the failure of the ECB in particular to co-operate with the Inquiry, while acknowledging that there was no legal obligation on it to do so. This is dealt with in greater detail in Volume 2 of this report. The stance of the ECB stands in stark contrast to the full co-operation and engagement offered by both the European Commission and the IMF.
Finally, it was a privilege to serve on this Committee. It was an opportunity to shine a light on a dark and difficult time in our recent past, an opportunity to piece together the events of that time, an opportunity to learn from the mistakes that were made and an opportunity to ensure that those mistakes are never repeated.
Ultimately, the Irish people will be the judges of our work and will make their own assessment of the crisis, through what they have seen and heard already in public hearings, and through their reading of this Report.
I trust that the Joint Committee’s work will be seen to have earned the respect of the Irish people and that the conduct of this Inquiry will serve as an example for future Parliamentary Inquiries.
Ciarán Lynch, T.D.,