Ms Ethna Tinney:

Further to the direction of the Joint Committee of Inquiry into the Banking Crisis to make a statement in writing on the following lines of inquiry relating to my role as non-executive director of the EBS Building Society, referred to below as EBS, I say as follows. To quality of the business model setting process, there was no such process as the business model had been set prior to my joining the board. In 1985, when I wanted to buy a house, the rules of EBS were clear. Ninety percent of the purchase price was the maximum you could borrow and two and a half times your salary. If you had a spouse or overtime, half of what each of these brought in annually could be added. Documentation had to be produced to verify applications. All Irish banks had similar rules. By the time I joined the board of the society 15 years later, in December 2000, those rules had been abandoned, not just by EBS but by most, if not all, lending institutions. Mortgage applicants’ declared incomes were sometimes well in excess of reality and up to six times the applicant salary was approved.

This happened gradually as the price of houses went out of the financial reach of most people, had the old rules still applied. I paid up to 14% per annum on the mortgage I held from 1985 to 1996 but, in the new euro scenario, interest rates had plunged which seemed to even out the risk. The risk of jobs being lost was not factored in, largely due to the country’s booming economy.

The induction to my new role as an EBS non-executive director was pleasant. The staff were delightful and the managers who explained their processes to me, equally so. However, I was uneasy when I was introduced to the idea of securitisation. In simple terms this is a way of packaging up mortgages into an asset and selling them on to a new layer of investors, who agree to pay a percentage of the nominal value of the loans in return for an agreed interest so that their money can be lent on again for new mortgages. It is ingenious in its way, as it is a system that seems to offer limitless working capital for a lending institution. But there is nothing to stop the new investors selling on their asset at a profit, and so on ad infinitum. Viewed that way, it has the look of a pyramid scheme and all depends on the original mortgages continuing to be serviced and becoming more expensive for the mortgagees. I could not get the image out of my head of a shark eating its own entrails. As time went by I became ever more doubtful of the fundamental banking concept of loans as assets and indeed of debts in any business as assets. The only asset that reassures me is something I can control and I cannot control the repayment of debt owed to me.

To adequacy of board oversight over internal controls, managed and monitored: unfortunately, this proved inadequate, which became apparent when the board of EBS was finally advised that an employee in the treasury department had illicitly engaged in proprietary trading strictly against the rules of the society. Strangely, this same employee had been previously present with his manager at a board meeting when non-executive directors had probed the possibility of just such an illicit trade being made. The board was reassured at the time by the executive directors that such a thing could not happen because of so-called “back-room controls”. These evidently failed and EBS sustained a significant loss. Similar scenarios unfold in other banks all over the world from time to time. But far more damaging was the decision by the board to sell the headquarters in Westmoreland Street owned by the society in order to transfer to a rented premises in Burlington Road. Over time it became apparent that this was a catastrophe and the full board did not have oversight of the implications of the decision.

To appropriateness of property-related lending strategies and risk appetite: lending large sums to developers was new to the society. The senior management in EBS, as in most of the lending institutions, were taken in by Ireland’s so-called developers and also by their professional and other advisers. So were the members of the board, including me. The belief that there were substantial profits to be made for the society from these developments led us to emulate our peers, although we had been cautious about joining the bandwagon. There was a sort of feeding frenzy as the banks clambered over one another to get a piece of the action, especially as new foreign banks had entered the market as competitors.

To appropriateness of credit policies, delegated authorities and exception management: and here there is an anomaly, Chairman, which I just want to clarify. In your opening introduction, you correctly said that it was actually in mid-2005 that I was put on the credit committee. My memory was faulty there and this affects what I have to say. I was actually taken off the BAC in mid-2005 and put on to the credit committee instead.