Ciarán Lynch (Cork South Central, Labour) | Oireachtas source

I will not be drawing Professor Walsh on its specifics. I want to get his view of several aspects of it. There is a chapter heading for external auditors, section 3.4, Auditing Irish Banks. It covers sectoral concentration limits, prudential sector lending limits of 20% of a bank’s own funds for one sector, and 250% of a sector, subject to a common predominant risk factor. The Honohan report states:

Rules of this kind were actually in effect, but not enforced. Specifically, there was a long-standing ceiling (200 per cent of own funds) which was supposed to be applied to loans to any one economic sector (various classes of property loan were treated as different sectors, so the overall property ceiling was higher). This requirement seems to have become a bit of a dead letter, [Professor Honohan mentioned that in his engagement with us.] with violations being noted but not acted upon. Albeit old-fashioned, this kind of rule would, if enforced, have been quite effective in slowing the bubble.

These were rules for auditors going into banks to see how the sectoral concentration limits were operated.

How was it that the external auditors were not applying the recommendation or guideline indicated to them quite specifically in the Central Bank bulletin in 1995?