Kieran O'Donnell (Limerick City, Fine Gael) | Oireachtas source

It was a privilege to have been involved in this cross-party banking inquiry along with my ten colleagues. It must be recognised that this inquiry had two strands - public hearings and the publication of the report. Each was equally important. The inquiry was held in public. For the first time the public could see, in real time, all the stakeholders appearing before the committee to be questioned. That should not be lost in the review of the banking inquiry.

I will discuss a number of areas in the time I have to speak. First, I acknowledge the work of the chair, the secretariat and everybody involved with the inquiry. What was new about this report, given that there has been a myriad of reports on this area? We made some key findings. The first finding is that this was a commercial real estate crisis for the banks, not a residential crisis. It was a residential crisis for ordinary people whose homes fell in value through no fault of theirs and who effectively, as a result of the crash, could not afford to pay their mortgages. However, for the banks it was a commercial real estate crisis. We know that because when NAMA took over the loans from the banks it paid €32 billion for loans of €74 billion, which is a write-down of over €42 billion. Over 80% of those loans were commercial loans. The write-down on the remainder of the commercial loans in the banks was of the order of 58%. It was about a third of that figure for residential properties. If the commercial real estate crisis had not happened, in all likelihood the Irish citizen would have ended up putting significantly less money into the banks, if any at all. We must lay to rest the myth that everybody partied. They did not. The ordinary citizen struggled. A few partied - the big boys - and they caused a situation whereby there is €30 billion of taxpayers' money in a black hole deep in IBRC, formerly Anglo Irish Bank.

A second key finding relates to the issue surrounding the guarantee. There were many options on the night of the guarantee, and they had been examined over the previous year. The only written document we got sight of was where the Central Bank had provided a press statement with the outline of a guarantee on that night, which just guaranteed deposits and inter-bank lending. There was no guarantee of any bondholders. A couple of hours later, however, everything was guaranteed, including bondholders across the board. Clearly, it is not the case that the blanket guarantee was the only decision that could be made.

The other issue was the many warning signs that arose beforehand. The National Treasury Management Agency, NTMA, is charged with managing taxpayers' money and borrowing on behalf of the State. As far back as August 2007 it refused to put money into Anglo Irish Bank and, successively, the other banks because it believed it was putting taxpayers' money at risk. The Minister at the time used legislation to force the NTMA to put money into the banks, to the point that €790 million of taxpayers' money from the NTMA was in the banks at the time of the guarantee. We have recommended in this report that the powers of the Minister over the National Treasury Management Agency be reviewed. There must be more independence, and those warning signs must be available.

There are key findings in the overall summary. There was a lack of judgment of risk by the banks, particularly regarding commercial lending, and excessive remuneration was paid to top executives in the banks. The remuneration was completely out of line with what the ordinary citizen was earning or, in many cases, what people were earning in top jobs elsewhere. The Financial Regulator and the Central Bank did not use the powers available to them. They did not need new powers as the powers were available already. One of them was that they could have insisted on the banks providing for extra capital to deal with possible losses, particularly in the commercial area. Policies were pursued at Government and fiscal level, in terms of tax incentives, which continued to fuel the cycle. There was talk that they would cease in 2002 but they did not cease until 2008. They all contributed to a whirlwind where the property sector went out of control. A total of 25% of our GDP was coming from the property sector. It was madness.

I will refer to the primary recommendations which seek to ensure this never happens again. First, in the commercial area, we recommend that there should be a comprehensive commercial property price register. If that had existed at the time it would have highlighted the fact that the price of commercial property was going out of control and also the risk the banks took on commercial property. The banks basically deemed that diversifying their portfolios was including property in Ireland, England, France, Europe and the US. That was diversification. However, all commercial property fell in value at the same time, so that was a complete misjudgment of risk.

Second, the European Central Bank, ECB, must appear before Oireachtas inquiries and must be held more accountable. The ECB blocked burden sharing for the Irish State on two occasions - in the bailout in November 2010, when there was €20 billion of unguaranteed bonds available, and in 2011 when there was approximately €9.2 billion available, based on the studies we received from the NTMA. Remuneration in the banks must be linked to medium-term results for the institutions. Boards of banks must be held accountable for the risk appetite and the judgment of risks within the banks. Boards abdicated their responsibility in that area and they must be held to account.

We also refer to the auditing area. The European Commission produced a Green Paper in which it stated that auditors must be replaced after six years. It was agreed to be ten years. In the nine years prior to the crash, three auditors dominated all institutions. There must be proper rotation. The second issue that emerged from the Green Paper is that as part of their auditing duties auditors should be required to audit the banks' concentration of commercial loans and residential loan books and report to the Financial Regulator, as a distinct requirement.

In terms of NAMA's work and the appraisal of its work, we were curtailed by the timescale as we could not look beyond 31 December 2013. We recommend that once NAMA has concluded its work a comprehensive review should be carried out of its work, value for money for the taxpayer and so forth.

Was the banking inquiry worthwhile? I believe it was. One reason is the public hearings. We went through matters forensically with 131 witnesses. I would have liked it to happen earlier but we held a referendum and the people gave their view on the new type of banking inquiry. They turned it down. However, we now have a body of work. It is a cross-party work, which is very important, where the citizen can get clarification of why and how it happened, the people involved and the recommendations to ensure it does not happen again.

I will conclude with one point. As a country, we do people very well.

If one has a good person in a position, one will find that the role is carried out to perfection. If a person is weak, however, our system does not compensate for that personal weakness. It is something we need to look at because situations will arise where a person is not particularly great in a role and a system will need to be in place to protect the interests of the taxpayer and the citizen.

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