Europe

Irish banking inquiry concludes watchdog and Central Bank 'failed to protect State'

Irish Central Bank
Image caption The Irish Central Bank (above) and the regulator had sufficient powers to intervene in the banking sector to protect the financial stability of the State, but neither intervened decisively, the inquiry concluded

The Irish Financial Regulator and Irish Central Bank both failed to intervene decisively to protect the state in the banking crisis, an inquiry has found.

The conclusion was made by an Irish parliamentary committee, which examined the causes of the Republic of Ireland's 2008 banking crisis and economic crash.

It said the Central Bank and regulator had sufficient power to intervene in the banking sector but did not use it.

The bank bailout cost Irish taxpayers an estimated 40bn euros (£30bn).

Excessive lending

This figure is lower than the original estimate at the time of the crash, when the cost was thought to be 64bn euros (£48bn).

Irish banks got into financial trouble because they lent excessively to property developers before the financial crash.

Q&A: Irish Banking Inquiry

In its final report, leaked to Irish state broadcaster RTÉ, the committee said the financial regulator also failed to identify the systemic risks building up in the banking sector.

Both the Financial Regulator and the Central Bank have been criticised in previous reports.

The final report, which is to be officially published next Wednesday, says the regulator did not take enforcement action between 2000 and 2008 against the banks, even when breaches were found.

It said and there were no consequences for banks that breached sectoral limits.

State institutions subscribed to the soft landing theory - that the Republic of Ireland's booming economy would not crash but see rates of growth gradually slowing - but there was no evidence that the theory was ever robustly tested or validated.

'Far from prudent'

The European Central Bank (ECB) position on burden sharing between the state and private bondholders in both November 2010 and March 2011 contributed to the inappropriate placing of bank debts onto the Irish people.

In March 2011, the then ECB president, Jean-Claude Trichet, reportedly told Minister for Finance Michael Noonan that "a bomb would go off in Dublin" for the financial services industry in Ireland if burden sharing took place.

The ECB reportedly warned the Irish authorities against "burning" bondholders, saying they had to get their money back.

The report says that had Mr Noonan proceeded with his burden sharing plan, the National Treasury Management Agency estimated that 9bn euros (£6.8bn) could have been saved.

On the banks, the inquiry says institutions moved very far from prudent lending practices in relation to property developers, even entering joint ventures in some cases.

The report comes weeks before an expected general election in the Republic of Ireland.

Under the banking inquiry's terms of reference, it could not make findings of fact against individual politicians.

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