Inquiry told it's unfair to say 'we all partied'

The Oireachtas Committee of Inquiry into the Banking Crisis has held its first session.

It heard from Finnish banking expert Peter Nyberg, whose report 'Misjudging Risk' examined the causes of the crisis.

Mr Nyberg, who conducted an investigation into the failings in Irish banks, has told the inquiry that the real estate mania in Ireland was unlikely to have resulted in a soft landing, even without the impact of the liquidity crisis in the United States.

He said his report was about the why and not the who.

Mr Nyberg said he was not required to name names and he decided not to do so.

It was easier to get institutions when reputations were not under threat and it was easier to avoid legal challenges and the risk of redactions was lessened, he said.

The responsibility for the mistakes was obvious, he said, it lay with directors, and senior and junior staff in the banks.

But he added that borrowers were also responsible for debt.

Committee Chairman Ciarán Lynch said a dark cloud lingered over every home in Ireland and the inquiry had to ensure it did not happen again.

He said the inquiry did not have the full picture and gaps remained.

Mr Lynch said committee members had the opportunity to "leave their jerseys at the door", nobody had a monopoly on wisdom and they must not prejudge.  

He said the committee offered an opportunity to showcase parliament at its best.

The first phase of the inquiry will hear from 30 witnesses and will set the context for the financial crash.

The second phase in April will hear from bankers, civil servants, politicians and regulators.

The inquiry is expected to conclude by November next year.

Watch live coverage of the Committee of Inquiry into the Banking Crisis

Nyberg faces committee questions

Mr Nyberg faced questions from committee members after his opening statement.

Sinn Féin finance spokesman Pearse Doherty asked if there was scope for options other than the bank guarantee in 2008.

Mr Nyberg said the legal basis for more sophisticated solutions was not there and nothing could be done on that basis.

He said that during the night, there were discussions on alternatives - a shorter guarantee or reducing the scope - but for various reasons, those alternatives were not considered realistic.

Mr Nyberg said that in the end the problems were bigger than foreseen and the efficiency of measures was reduced.

He also said it was not fair to say "we all partied", as people had just lived a little better than they otherwise would have done.

Fine Gael Senator Michael D'Arcy asked how he thought the Irish banks were at judging risk.

Mr Nyberg laughed and said he could not answer on the basis of his commission's report, but he said the Irish institutions were pretty good at misjudging risk.

He told the committee that a lot of people enjoyed benefits from the bubble in terms of public expenditure and services, low-cost loans and access to housing.

However, he said that does not mean they partied, but the boom meant they felt much better than otherwise.

Unlikely inquiry will uncover anything new

Mr Nyberg said he believed it was unlikely anything new would emerge from the banking inquiry.

He said it was important to ensure a similar crisis does not happen again.

Mr Nyberg said he spoke to auditors as part of his research for his report.

He said that auditors of banks did check technical details and if they picked up on issues these were usually corrected.

He said he interviewed 140 people for his report but did not speak with the ECB.

The Finnish expert said that any issues that could become subject to a garda investigation were not examined in his report.

Mr Nyberg said there were also significant problems with auditors criticising banks.

He said if an auditor found a problem it had to raise it with a bank.

If the problem was not addressed, the auditor would have to resign.

He said if the problems found by auditors were made public it would have resulted in big problems for banks. No auditors did resign, he said.

On the bank guarantee, he said the risk of one bank failing would have created funding problems for other banks. Mr Nyberg said he found this view credible.

He said: "Is it the best decision that a government could have done? Clearly not. Clearly an orderly resolution would have been better, but it was not possible at that time."

When asked about the ECB's position on burning bondholders by Fianna Fáil's Michael McGrath, Mr Nyberg said: "The ECB sees its role as a guarantor of financial stability in the whole of the eurozone."

Senator Sean Barrett asked: "Were there other dissident voices in the Central Bank?"

Mr Nyberg said: "There were contrarians. I am not prepared to say where they were."

Kieran O'Donnell said: "You make two references to the domestic standing group ... This group considered a special resolution regime."

He asked what level this group was at and who it reported to.

Mr Nyberg said by 2006 a lot of the bank risks were there and if one did not do something they would become larger.

He added the group was mandated by the EU.

He said the group did consider a special resolution regime.

It was supposed to be an information sharing group for the Department of Finance, Central Bank and Financial Regulator.

He said the department began to think of a resolution regime after Northern Rock in 2007.

The other institutions did not think it was a good idea because they thought the banks were solvent and that banks could be taken over by Government.

If there had been a common will among politicians of an early resolutions regime it would have been possible to introduce, he said.

Warnings not insistent

Mr Nyberg said there were warnings from Department of Finance staff but they were not very strong and not very insistent, but rather very general warnings about overheating. 

Mr Doherty asked if the crisis was essentially homegrown.

Mr Nyberg said it was. He said nobody forced the banks to grow or Irish households to invest and borrow. It was voluntary, he added.

He said the Financial Regulator should have been looking at the concentration of credit and how the risk mitigation procedures were not working. 

They should have looked at how lending criteria had changed over time, he said. 

There were no technical problems in the banks; they had resources and smart people. 

He said one of the big conundrums was why nobody said stop. If the regulator, or the media or the parliamentary committee had said this must stop, it would have stopped.

Coveney criticises ECB decision not to appear

Earlier, the Minister for Agriculture said the decision by the European Central Bank not to take part in the inquiry was not acceptable.

Speaking on RTÉ's Morning Ireland, Simon Coveney said it was the wrong decision by the ECB.

He said he believed the ECB had an obligation to be part of the explanation for what had unfolded in the banking sector.

The minister said: "We're setting up a banking inquiry involving all political parties so that we can get a detailed understanding and explanation of what has happened in banking over the last five to ten years.

"And whether the ECB like it or not, they were part of that story, and they have an obligation in my view to be part of the explanation for what unfolded in banking over the last ten years."

ECB President Mario Draghi wrote to the inquiry chairman to inform him that the bank would not be participating in the hearings.

Mr Draghi said the ECB was primarily accountable to the European Parliament and it did not see itself participating in inquiries conducted by a national parliament.

Sinn Féin deputy leader Mary Lou McDonald also said the ECB's refusal to attend the inquiry was not acceptable.

Speaking in the Dáil, Ms McDonald asked Taoisech Enda Kenny if the Government had challenged Mr Draghi on his decision.

Mr Kenny said he cannot force the ECB to attend and he has not spoken to Mr Draghi about attending the inquiry.

He said he understands that the ECB is not obliged to attend, but he thinks it should attend.

Meanwhile, the European Commission has contacted the inquiry and told it that it is willing to provide witnesses to hearings, RTÉ News has learned.

It is not yet clear who from the European Commission will appear at the hearings.

It is also understood that International Monetary Fund has indicated that it will co-operate with the context phase of the Banking Inquiry.

The ECB, IMF and the European Commission made up the three parts of the Troika.

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