Commission of Inquiry into Banking Sector: Statements

Minister for Finance (Deputy Michael Noonan)

Yesterday was a sobering day for anyone interested in how a successful economy can, in parallel, develop the seeds of self-destruction, and how these seeds can take root, grow and develop and eventually create enormous havoc. This is the third year of the banking crisis and I come to the Dáil Chamber today in a sombre mood.

How it all came to pass is the subject of the report we have before us today, Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland, Report of the Commission of Investigation into the Banking Sector in Ireland, prepared by Peter Nyberg. As I said yesterday, this report represents a thoughtful and multifaceted analysis of the causes of the banking crisis in Ireland and bears careful and measured consideration by all in the House. It requires careful consideration because we have to learn the lessons from these events, about how we got there, how we managed during the period and how we dealt with the crisis as it was developing.

Mr. Nyberg's report is a story about bank management which no longer understood what lending was about and had forgotten the very nature of credit. Providing credit, Mr Nyberg says, is not a sale of bank services; it is the acquisition of a risky asset. The appropriate prudential focus of such a transaction is, therefore, limiting and mitigating risk — or, at the very least, understanding the real risk and pricing it accordingly — rather than expanding sales, which seemed to be the objective of the banking industry in Ireland. This apparent inability, some might say unwillingness, of Irish banks to remember this basic principle of banking was a major cause of the banking crisis in Ireland.

It is a story about banks whose boards did not fully understand their role in oversight and control and that, in certain cases, lacked appropriate expertise to hold bank management to account. It is the story of national authorities which failed to read the macroeconomic warning signals that could have indicated a pattern of unsound lending behaviour by banks in a timely fashion, which seriously underestimated the nature and extent of the risks in the Irish financial system, and which had not gathered the necessary information. If more relevant information on and analysis of the underlying position of some of the banks had been available, discussions and policy recommendations might have been different. It is also the story of a seriously inept Government which fuelled rather than restrained the activities of banks when the crisis began to emerge. That is why this report is important. That is why this House has a responsibility to reflect on it and to see what lessons we must learn from this appalling crisis in order to get back to rebuilding the country, rebuilding its institutions, rebuilding our communities and getting people back to work.

In January 2010 the previous Government set out a framework to the Oireachtas for investigation into the banking sector. This investigation consisted of two distinct stages. The preliminary report published in June 2010 by the Governor of the Central Bank, Professor Patrick Honohan, entitled The Irish Banking Crisis — Regulatory and Financial Stability Policy 2003-2008, and the report by Messrs Regling and Watson, entitled Preliminary Report on the Sources of Ireland’s Banking Crisis, formed the first stage of this investigation.

The second stage consisted of a statutory commission of investigation. The establishment of this commission was approved by Dáil Éireann and Seanad Éireann on 8 July 2010, and an order formally establishing the commission was made by the previous Government on 21 September 2010. The commission's terms of reference, which covered the period 2003 to 5 January 2009, were to examine the following: the main causes of the serious failures within each of the covered institutions; the main reasons Anglo Irish Bank Corporation and Irish Nationwide Building Society adopted and implemented business models, strategies and lending practices which resulted in those institutions experiencing severe financial distress; whether external auditors of the covered institutions commented in their audit reports or other communications to the institutions concerned on the failures that were arising; and the main causes for the failures in the performance of the statutory roles and responsibilities of the Central Bank and Financial Services Authority of Ireland and the relevance in that regard of any advices or directions given by the Department of Finance.

The previous Minister for Finance formally appointed Mr. Peter Nyberg as sole member of the commission of investigation on 22 September 2010. The commission submitted its report to me on 22 March 2011, in keeping with its remit to complete its investigation within six months. I thank Mr. Nyberg for completing his work so quickly and thoroughly and for offering an analysis that gives us plenty of food for thought.

In accordance with the terms of reference of the commission, the report makes several findings. Mr. Nyberg found that the main reason for the crisis was the unhindered expansion of the property bubble financed by banks using wholesale market funding. Attendant risks went undetected or seriously misjudged by the authorities whose actions and warnings were modest and insufficient. The speed and severity of the crisis was made worse by worldwide economic events but, notwithstanding these external factors, the problems which led to the crisis and the scale of that crisis were the result of domestic Irish decisions and actions.

The report states that many of the problems and failings in Irish banks and public institutions were similar to those in other countries. Banks set aggressive targets for profit growth which implied a partial change in business model and strategy without the necessary corresponding strengthening of governance, procedures and practices. Boards and relevant observers appear to have had little appreciation of how the banks were run at grassroot level, or at least they did not seem unduly concerned about the practices taking place. The inadequate attention banks generally paid to credit risk management is, in the end, evidenced by the extent and nature of their subsequent problem loans. Management and boards in general appear not to have fully appreciated the two key risks to which their banks were exposed, namely, increased exposures to funding-dependent development projects with future refinance risks, and volatile wholesale funding. Bank management and boards seem to have been totally unprepared for both of their key risks, property loan impairment and funding problems, occurring simultaneously.

The report also concludes that for several years before the banking crisis, the authorities operated under the assumption that financial markets generally were efficient and self-regulating. A banking system requires oversight, the report states, and, when necessary, the intervention of alert, aware and empowered authorities. This is because of the economic and social importance of banking, as well as its high leverage, public depositor support and a tendency to exhibit occasional problems. The core policy challenge for the authorities was to recognise early warning signs, within banks and the economy, so as to be in a position to take timely pre-emptive action and mitigate any potential threats to financial stability.

In respect of auditors, the report states that their commentary regularly focuses only on issues they consider relevant to the accuracy of historic accounts. In practice, this means auditors look primarily backward and at technical issues that may influence the accuracy of accounts. The auditors clearly fulfilled this narrow function according to existing rules and regulations. There appears to have been no challenging dialogue with the covered banks on their business models and growing property and funding exposures. The commission finds it unfortunate that sufficient, timely and challenging auditor dialogue was not used to influence the banks' business models and lending practices.

The findings and recommendations set out in the report in regard to auditors are a matter for the Minister for Enterprise, Trade and Innovation to consider, and I have written to him seeking his views. However, it is my view that auditors may be able to take on a more enhanced role in co-operation with supervisory authorities, while recognising their specific statutory functions. The Central Bank and Financial Services Authority of Ireland is already engaging with the audit profession to explore how it can assist the bank in exercising its supervisory functions. I am keen to see progress and developments in that area.

I will outline some of the actions the Government plans to take to meet the recommendations set out in the report.The commission makes recommendations in regard to the structure of the banking sector, stating that it may be necessary to limit the size and growth of banks and the banking system relative to the economy. The State's November 2010 agreement with the external authorities envisages a programme of deleveraging and restructuring to take place within the banking sector in the next two years. I have already announced the details of what will be done in that area.

The commission's report is highly critical of the role played by board members and senior management of banks in failing to oversee their institutions effectively. As a result of these board-level failures, I am setting out three measures designed to strengthen bank boards and management. First, the chairman of each institution will have to provide me and the NTMA with a board renewal plan This plan will have regard to company law and regulatory requirements and will set out, for each institution, the steps to be taken to ensure the skills and competence levels of board members are fully adequate to the demands of the current situation and the planned future of the Irish banking system.

Second, the board of each institution will be asked to provide a management renewal plan This plan will set out, for the relevant institution, the steps to be taken to ensure the skills and competence levels of senior managers are fully adequate to the demands of the current situation and the planned future of the Irish banking system and that each senior manager will be capable of meeting the Central Bank's new fitness and probity standards.

Third, it is essential that boards of banks continue to have an appropriate number of independent non-executive directors. Having regard to the size of its shareholding in each institution and the necessity of ensuring the State's interest is properly represented on each board, I will actively nominate members of the boards of each bank from among qualified individuals with appropriate skills and experience.

The Central Bank also is undertaking a wide-ranging programme of reform of the way it regulates the corporate governance and board-level membership of the financial institutions. It also is important to continue to strengthen the Central Bank. Members will be aware that a number of measures have been put in place since the onset of the crisis. These include legislative changes to merge the Central Bank and Financial Regulator and to enhance the powers of the unified organisation. Further enhancements to the Central Bank's powers will be introduced to the Oireachtas shortly in the forthcoming Central Bank (supervision and enforcement) Bill and these will be outlined at that stage.

The report contains important messages and conclusions for the Department of Finance. While this report relates principally to banking matters, some of these messages may also be of importance to the Department of public expenditure and reform and to Departments generally. Critical assessment and review of past actions can sometimes be difficult and this is a challenge to which everyone must face up. This is particularly important for Departments of State. I will take the report from Mr. Peter Nyberg, as well as a broader review of the Department that was chaired by Mr. Rob Wright, and determine how to reform and build the capacity in the Department to service the demands of the economy in these uncertain times. In addition, there must be ongoing adaptation and better definition of the roles and functions of the Department and the NTMA and its associated bodies to ensure the structures in place take full account of the developing situation. A stand-alone unit accountable to the Minister through the Department of Finance and with a clear set of objectives to manage the Government's holdings in the financial sector will be created to fulfil the oversight role.

The restructuring of the banks announced already by the Government must be implemented. This will require a hands-on approach by the banking unit in the Department of Finance, which will drive the reform. This unit will be strengthened as necessary and will draw on the resources of the NTMA to carry out its work. In the first instance, the unit will operate within the Department of Finance but in due course, it will become more independent of the Department while still reporting to the Minister for Finance. A detailed implementation plan will be developed in consultation with all relevant organisations.

Before concluding, I will address one further point. The publication of the commission's report yesterday and the statements on the report in the Dáil today provide an opportunity for public debate and consideration of the report. It is important that the Oireachtas have adequate opportunity to consider and discuss the report. Having consulted with the Attorney General, I can confirm that while the publication of the report will not prejudice any criminal proceedings that are pending or in progress, I also was advised that the Abbeylara judgement makes it very difficult for Oireachtas committees to effectively fulfil their important oversight roles. Therefore, as I stated yesterday, the Government proposes to hold a referendum on a proposed constitutional amendment by the end of this year to address the consequences of the Abbeylara judgement.

The Nyberg report has identified the main causes of the banking crisis and, together with the two preliminary reports, sets out all the interlinked elements that each in its own way contributed to the financial crisis in which we have found ourselves since 2007. We must now learn the lesson from this crisis and put in place the building blocks for moving the economy on to growth. The Government is bringing about a radical restructuring of the banks to support economic growth and job creation. Unfortunately, as has been seen in the report of the commission and other issues today, legacy issues remain in the banks that the Government must address and it is determined to so do. I commend this report to the House.

Deputy Brian Lenihan

I also commend the report to the House and thank the Minister for his introduction to the report and the constructive tone of that introduction. The report is damning in respect of both the Financial Regulator and the Central Bank. It concludes that the Financial Regulator and the Central Bank were aware of the problems in Anglo Irish Bank and in Irish Nationwide Building Society in particular. The dependence on foreign funding and the concentration of lending in the property sector was clear from their balance sheets and the governance issues at Irish Nationwide Building Society appear to have been well known by the relevant authorities. If it had believed it necessary, sufficient information was available to the Financial Regulator to have taken decisive action in the case of both of these institutions. However, there does not appear to have been an appreciation at the Financial Regulator of the funding and lending risks that were building up in the banking system. As the Minister has pointed out, it appeared to rely on the boards of management of the banks to make the correct decisions in the best interests of their institutions. Lending practices were not scrutinised and there was a general unwillingness to engage in any detail in what possibly was perceived to be intrusive verification to establish whether the banks were behaving in a prudent manner.

This is very serious because those of us in public life believed there was a failure on the part of the political system to ensure there were greater restrictions on credit and fewer incentives to property speculation and property incentivisation. Similarly, I refer to a lack of requirement to pay deposits in the case of the acquisition of speculative land or land for future speculative purposes, a failure to insist on a requirement for deposits by lenders in such circumstances, as well as a failure to insist on the need for more restrictive mortgage conditions. These all are matters which never even entered the realm of consideration during the relevant period because the preliminary assessment that the actual position was drifting into a crisis, which would have been essential, was never made in the first place. This is highly serious. The interaction with the banks in the case of the Financial Regulator and the Central Bank was confined to bank governance and internal processes. Even where deficiencies or weaknesses were discovered, there was an unwillingness to take firm action. This undermined the authority of the regulator from the outset and the report does not accept that lack of resources or powers was the reason for the failure of the Financial Regulator to intervene.

An understandable criticism that often is made of the Government and the political system concerns a failure to provide adequate resources or legal powers. However, the report finds there was no failure to provide adequate powers or resources to the relevant authorities. The report states that had the will been there, a number of possible approaches were available that could have reduced considerably the scale of what eventually emerged. It appears that the Central Bank seriously underestimated the extent and nature of the risks that had been building up in the financial system. It expressed nuanced and somewhat indirect concerns on possible risks. There was no exploration of worst-case scenarios and therefore, no full preparation for a crisis and no crisis contingency planning. Consequently, what one would expect to happen within the Department of Defence all the time did not happen at the Central Bank or the Financial Regulator as there was no contingency planning for disaster scenarios. The Central Bank believed it was the responsibility of the regulator to evaluate possible problems in financial institutions. While it was responsible for overall financial stability, it believed it should not question the regulator's supervision of individual institutions. This is part of the institutional architecture prescribed and discussed in this House at length in the earlier part of the last decade. As the regulator did not raise any concerns in this regard, the Central Bank could not have been expected to detect existing or emerging problems. However, the report finds this to have been an unacceptably narrow interpretation of its responsibilities by the Central Bank. It states that financial stability should have been the overriding objective and the Central Bank, as well as other responsible authorities, should have done whatever was necessary to achieve this.

Moreover, the report finds that an active and suspicious Central Bank would have had concerns about emerging macroeconomic data from mid to late 2005. While it notes the existence of financial stability reports that show an awareness of the emerging economic risks, the view was that such risks would not materialise. The financial stability reports referred to concerns about risks to stability but the overall conclusion was that the most likely option was a soft landing. "Monsieur Trichet, nous cherchons le soft landing”, appears to have been the dominant maxim within Irish finance at the time. The financial stability reports refer to concerns about risks to stability but, as I stated, the conclusion was that the most likely outcome would be a soft landing. Members now know of course that such a soft landing did not happen. The evidence in favour of this view was far from analytically compelling according to the report but had wide currency in banking circles and among the authorities. The report attributes this to herding and to group-think behaviour. This is a rather modest characterisation of what really amounted to a Gadarene swine-like phenomenon.

The report also criticises the failure of the Central Bank to foster critical debate internally on stability issues. It accepts the view that it would not have been in the best interest of stability to publish alarmist views but goes on to state there was nothing to prevent the Central Bank from voicing concerns confidentially to the Government. Crucially, the report finds there was no evidence that this was done.

The report finds that the Department of Finance was concerned about the need to rein in Government expenditure and tax reliefs, but suggests the Department's warnings were not vigorously articulated. It points out that, in the briefing given to Mr. Brian Cowen when he became Minister in 2004, there was no mention of concerns about credit growth. It also states that the ability of the Department and the Minister to convince the Government of the need for restraint was blunted by the fact that, from 2003 to 2007, tax revenues were consistently higher than forecast, leading to larger budget surpluses than planned. Political pressure to allow high rates of spending on social and other priorities was considerable. While the Department identified various risks to the economy, no single comprehensive analysis integrating these risks and assessing their implications for the economy was conducted.

Regarding the construction sector, senior management at the Department was updated regularly on housing development and credit growth, including some warnings that the latter was unsustainable. Nevertheless, a briefing note to the Minister on the 2005 financial stability report stated: "all the evidence is that systemic risk ... to the financial system from a downturn in the property market is relatively limited". The report finds no evidence that the Department was particularly concerned with prudential matters or financial stability concerns. There was no critical analysis of the reports coming from the Central Bank.

Regarding the decision to guarantee the deposits and liabilities of the banking sector in September 2008, the report states that the lack of a paper trail makes it difficult to make judgments, but it finds that the lack of suspicion and the absence of correct information on the banks' balance sheets impacted on what alternatives were considered reasonable on the night of the guarantee. Decisions were made in the belief that the banks were and would remain solvent and that the issue that needed to be addressed was one of short-term liquidity. Only on this basis does the commission understand and accept the need to give a broad guarantee.

The report acknowledges the pressures under which the decision was made. However, it criticises the lack of options considered in the run up to the decision, which it puts down to the lack of preparatory work in the run up to the financial crisis by the relevant authorities. It points out that the contingency plans that had been made were based on the belief held by the regulator and the Central Bank that there was no solvency issue facing any of the banks. This position was maintained subsequent to the guarantee. The possibility of a systemic crisis was not considered. An internal Department of Finance presentation in February 2008 ruled out an open-ended legally binding guarantee on the grounds of the risk to which it would expose the Exchequer, but a later presentation in April 2008 noted: "there are circumstances where such guarantees may be unavoidable to maintain confidence in the overall financial system."

Mr. Nyberg should be thanked for his work. I understand that he has examined a great number and range of documents and interviewed a large number of personalities, including me, who were involved at various stages of these matters. I had an opportunity to examine a limited selection of the report prior to publication in so far as the report had anything to say about periods in respect of which I was in office. The bulk of the report deals with the serious developments in the banking system.

The Minister is right and he has produced a number of practical proposals on foot of the report. The outgoing Government moved swiftly to merge the Financial Regulator and the Central Bank into one entity. This decision was questioned by some at the time. In light of the report, though, it was the correct decision. We should never again be in a position in which the two are separate, as issues of financial stability and bank regulation should be inseparable.

The report is curiously silent on the issue of the role and responsibilities of the European Central Bank, ECB, in respect of the national authorities, specifically the Irish Central Bank and the regulatory system. This is a germane issue for the Minister and the State in the negotiations he must undertake in Europe, yet it is not really touched upon in the report. A further look at the issue might be worthwhile. Although I hesitate to suggest a further commission or anything of that character, it deserves further study and preparation of material.

Having summarised the findings, the Minister made the point that the question of the role of auditors is a matter for the Department of Enterprise, Trade and Innovation, which it is, but it seems that one of the core problems with the banking sector is the fact that, to acquire business, auditors depend on the goodwill of the institutions they are auditing. This inherent conflict of interest has clearly caused a great deal of difficulty in terms of accurate financial information on the banks.

The Minister referred to the changes in the structures of the banking system and, crucially, addressed the question of the capacities of banks' boards and managements. This must be at the heart of any response to the report. A great deal of change has already occurred at board and management level in the banking sector. While change comes with a price, it must be done. The Minister has formalised the approach of the former and current Governments in terms of a board renewal plan and a management renewal plan. These plans involve the phasing out of some residual elements of board presence that have been there from a time not long before the guarantee. It is appropriate that the Minister should put in a formal way the Government's proposals in this regard.

When public interest directors were appointed under the guarantee, I consulted the Opposition parties about their appointment. This practice should be continued. Notwithstanding that, it is the case that the selection of these individuals is a matter of considerable concern. From my experience, I might suggest to the Minister that, while he can gather a large number of curricula vitae and examine many personalities, the actual skill and judgment required are the skill and judgment to form a view independent of the institution and not to be captured by the institution.

An Leas-Cheann Comhairle

The Deputy has two minutes remaining.

Deputy Brian Lenihan

I did not realise I had taken up so much time. I will conclude by referring to the Minister's comments on the new banking stand-alone unit accountable to him through the Department of Finance. I can appreciate what he is attempting to do. At the time of the guarantee, responsibility for execution and formulation of policy rested exclusively with the Department. From 1 January 2010, elements of the execution of policy were devolved to the National Treasury Management Agency, NTMA. I found this a good arrangement because the NTMA generally has more experience than officers of the Department in dealing with and handling financial transactions. The Minister will need to consider carefully the remuneration of the staff he proposes to assign to the banking unit and their precise legal relationship with him and the Department. As I understand his comments this afternoon, the staff will begin in the position of being directly part of the Department but, in time, may have a somewhat independent existence.

It is a matter of difficulty — I am sure the Minister has encountered this difficulty already — that, in terms of banking policy, a Minister must make decisions on advice from his or her officials with the assistance of the NTMA, which is under the Minister's direct direction, and having regard to views expressed by the Central Bank and the regulator. A wide range of entities are involved and their priorities are not always the same. For example, the priority of the Central Bank is financial stability, that of the regulator is prudential regulation, that of the NTMA tends to be to make money and that of the Department of Finance tends to be to reconcile all of these different points of view. I have a word of caution for the Minister — if there is a new banking unit, he should make sure it is clear where this particular brick fits in the wall so that he can be in a position to make whatever decisions are the right ones in the public interest.

Deputy Pearse Doherty

Too often in the clamour for ever higher profits in the years leading up to the crisis, the voice of reason was not heard and risks were ignored. The report has exposed this problem and revealed significant shortcomings in the risk control frameworks of financial institutions. In particular, the failure to properly assess the risks inherent in business models, portfolios and off-balance sheet activities has become evident.

The seeds of the crisis were sown when the financial system began to lose its focus on core services. Incentive over risk business models meant that institutions no longer fulfilled their primary function of performing due diligence on borrowers. Banks purchased risky assets but were unable to undertake adequate due diligence of the instruments they held. The risk-involved lending strategies were not properly assessed, particularly the probability and impact of tail events. Rather than relying on deposits from private savers, financial institutions began relying on wholesale funding markets which they believed would continue to be available.

The argument that markets by themselves lead to efficient outcomes has no theoretical justification today. In the past, the evaluation of regulations and regulatory regimes tended to focus more on quantifying the costs than on quantifying the benefits, to the extent that any measures that could restrict the risk-taking behaviour of financial institutions were not implemented. This was to the detriment of ordinary people. Nyberg himself states that "lending was seen (and rewarded) as selling a loan or service rather than as acquiring a risky asset".

The report has demonstrated in no uncertain terms that the behaviour of financial institutions, regulators and governments has the power to inflict great harm on the real economy. As a result of the crisis, the financial system has been completely damaged; over 440,000 people are unemployed, 1,000 people are emigrating every week and at the end of 2010, some 44,500 mortgages were in arrears for over 90 days, with 80,000 mortgages in a distressed state.

I have one serious gripe with this report. Nyberg attributes blame unfairly for this crisis to "large parts of Irish society [which were] willing to let the good times roll". We can we all agree that people who were too poor to buy property, even given the lax lending standards of the day, cannot have been to blame for the speculative frenzy of the time. What about the people struggling to rent property and who were on the ever-bulging local authority housing waiting lists? Can these people be blamed? What about those who were supposed to be leading, regulating and monitoring? These apparently educated and well-informed individuals were supposed to be fiscally responsible.

Lest we forget, these supposed good times only happened because the people of this State were under a constant barrage of information from the Government, the Department of Finance, the IMF, the EU and the ECB indicating that this was sustainable; there would be a soft landing. How could anyone stop these good times when at the same time any questioning of its sustainability was dismissed and written off? Market bubbles and crashes are not the result of the unco-ordinated interactions of ordinary individuals but come from strategic actions by governments, speculators, bankers, brokers and regulators.

One of the most striking points in this report is when Nyberg asks the question that many have now asked before: why did nobody say "stop"? We have heard the reprimands before but somehow it is all the more stark when illustrated in the graphs in the Nyberg report of banking activity before, during and after the bubble. These show how the amounts loaned out by the banks covered by the State guarantee grew to dwarf the amount they had on deposit; how the amount they loaned to domestic clients shot up from €94 billion in 2002 to €262 billion in 2008; the growth of risky construction and property sector loans; how the amount of property and business loans came to around the same as half of our national GDP by 2008; and how the pay packets of bank chief executives got fatter up to 2007.

If there was a herd mentality in this State over the last decade then Sinn Féin were the black sheep. We did not support the consensus and we did not follow blindly when the property bubble was being inflated.

Deputy Robert Dowds

Sinn Féin were not the only party at that.

Deputy Michael Noonan

You were robbing the banks at that time.

Deputy Pearse Doherty

The comment by a Minister accusing me of being a bank robber is absolutely disgraceful. The herd mentality also applies to that cheap sort of response.

Deputy Bernard J. Durkan

The Minister was talking about republicans. The Deputy would know about cheap comments.

Deputy Pearse Doherty

It is exactly the same response that came from others who sat on those benches who continually dismissed or disputed warnings from the other side.

Deputy Michael Noonan

I did not refer to the Deputy.

Deputy Pearse Doherty

He did. We can look at the blacks.

An Leas-Cheann Comhairle

Deputy Doherty, without interruption.

Deputy Pearse Doherty

I am sure we all remember the 2007 election and the promises that the economy was on a sound footing. I have a 53-page document which I will make available to Members. It outlines what Sinn Féin continued to say in the period investigated in the report. The party repeatedly tackled Ministers regarding their failure to take any measures to stop the escalation of house prices. We repeatedly questioned Ministers regarding the development of a property bubble and we called for the introduction of a tax on second homes to curb growing house prices which were seeing investors price first-time buyers out of the market. We opposed the cutting of capital gains tax on the basis that it would fuel the property bubble and make it more profitable to speculate in property than to run a business. We called for the ending of tax breaks which were fuelling the property bubble and we warned of the dangers inherent in an over-reliance on the property sector for revenue and for employment. We also called for pre-emptive training of workers in vulnerable sectors of the economy, including manufacturing and construction. Any examination of Sinn Féin's Dáil record between 2002 and 2007 verifies this. Due to limited time I will not read from the document but I will make it available.

The Nyberg report highlights Irish characteristics of the crisis specific to a deliberate and willful suspension of disbelief; the suppression and punishment of any dissent; and deliberate minimising of responsibility, with no accountability whatsoever. What is worrying is that there is a clear and present danger that after this report, the Government will declare that the problems and features leading to this crisis were confined to banking, banking supervision and financial regulation in this period. There is a danger that we will be told that they have now been addressed and that every other area in the Irish public sphere presents absolutely no evidence of these failings.

The real problem is that many people holding positions of power, authority and influence will like us to believe this. Fianna Fáil would like us to believe that the omission from this report of any blame on its part is a pardon on its behalf when this was explicitly omitted from the terms of reference. Fine Gael and Labour would like us to believe that it was the bad governance of the previous Governments and the bad regulation and oversight of and within banks but we know a Government is only as good as the Opposition that checks it. They would like us to believe that swift and decisive action is being taken when they are blindly leading the people of this State into another crisis led by the EU and IMF and which could sink this country.

The continuation of this mantra that all has changed is the principal reason Ireland is struggling to recover from this largely self-inflicted downturn. It seems that the more things change, the more they remain the same. The omens are not good, given that the same worn out and passive establishment is still indifferent to issues of reform and matters of process even though the lack of accountability and the lack of concern for conflict of interest remain at the heart of the current crisis facing Ireland. All we have to do is observe the stubbornness and pigheadedness of the same parties who refuse to burn bondholders and accept that Ireland's debt burden is unsustainable. This new Government, similar to the last, is sleep-walking into a crisis.

It is all too easy to blame the "herd culture" but the buck must stop somewhere. People want and deserve answers, and this report displays that every sector or link in the chain failed. The budget is the instrument used by the Government and Department of Finance to control the country's finances. Throughout the period leading to the crisis, the Government incentivised risk, speculation and, essentially, the foundations of this crisis. It is not sufficient to look back and criticise what went wrong when the mechanisms and policies of the crisis are still in place and being implemented. We cannot just criticise the last Government when the new one is administering the same policies as those of the EU and the IMF.

The real cause of our crisis has been the financialisation of economic policy, in which investors were incentivised to invest in financial speculation rather than in industry or services. Successive Irish Governments have bought into a policy consensus that believes long-term economic growth should be based on deregulation of domestic and international banking; withdrawal of the State from the functions of the central bank; incentivisation by government of speculative investment via low tax regimes and generous tax breaks; incentivising risk in banking and finance; and privatisation and market liberalisation. Given that this policy consensus has dominated the State for so long, it is little wonder that investors and bankers took such risks and regulators failed to regulate.

The evidence provided in this report cannot be used in any criminal or legal proceedings. While Government members have indicated that they to see prosecutions and convictions, the most surreal aspect of this crisis is that most of the people instrumental to it did not break a single national law. The culture and mechanisms that sculpt the law are the same as those that fostered the crisis. While the law might never be able to prosecute those who have cost the State €100 billion and brought us under the receivership of the EU and the IMF, people who choose to feed their families instead of meeting their mortgage repayments could have their homes taken away. Someone who does not get a dog licence will spend time in Mountjoy Prison, while someone who prioritised profit over risk will retire on a handsome pension.

The sick thing is that this has garnered large-scale acceptance. This is the norm, it is the dominant culture. From the start, this report was never going to draw a line in the sand with regard to the banking crisis. How could it, when we are still beholden to the bondholders who are being rewarded for their gambles? We predict that this House will be looking at another report in a few years' time — one that will chronicle Ireland's descent into disorderly default. We will pay yet another outside expert to use the gift of hindsight to tell us once more that a herd mentality threw us into economic, financial and social catastrophe. For the benefit of any such future report, Sinn Féin wants to put it on the record that the debt burden of the State is unsustainable, and that without organised burden sharing and acknowledgement that the Irish sovereign has taken on too much debt, there will be a disorderly default. We state again that our debt to GDP ratio could reach 128% if we continue along a path of fiscal consolidation without growth. The series of austerity budgets that the Government plans to introduce, as promised under the EU-IMF programme, will make the situation worse.

Our unemployment rate for this year is already hitting levels predicted for adverse conditions. People are under attack from a raft of austerity measures to be imposed by the EU, the IMF and the Government. While Brussels, Frankfurt and Washington discuss how best to extract money from the battered Irish economy — and continue to avoid the elephant in the room, which is senior bondholders — the Irish economy limps from crisis to crisis and is slipping into another critical phase. The State needs debt relief proposals for those struggling to pay their mortgages. We need a proper stimulus package that will invest in jobs and the domestic economy. We need a substantial change in policy direction and an acknowledgement that tweaking the EU-IMF programme at the edges will not deliver substantive change. Our debt needs to be restructured here and now, and not some time in the long-term future. We need to impose burden-sharing on senior bondholders, given that Pimco, one of the largest bond funds in the world, has already stated that senior bondholders need to face losses. In addition, the recapitalisation of zombie banks must halt immediately.

A tap has been left on. Resources are being drained from the economy. Funds that are urgently needed to allow the economy to grow have been diverted to pay off private investments. I am sure the Minister will dismiss, as he did earlier, everything being said here — all the warnings we have repeated today and will continue to repeat until they sink in. The Government, Fianna Fáil, the EU, the IMF and the ECB will dismiss everything I am saying. As in the period 2002-07, Sinn Féin refuses to be part of a consensus that will walk the Irish people into another crisis. We did not follow the flock. We spoke up — and, unfortunately, we were right. Just as reliance on the construction sector, consumption taxes and deregulation led us into this crisis, so will adherence to the EU-IMF diktat allow it to continue. This debt burden is unsustainable now. When we read reports about this crisis in a few years' time, they too will tell us so.

Deputy Shane Ross

With the permission of the House, I wish to share time with Deputies Richard Boyd Barrett, Clare Daly and Thomas Pringle.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Shane Ross

This report, in its essence, produces nothing new. There is no news in it and no new figures. Indeed, there are no new characters to blame in it, and no institutions. Mr. Nyberg spreads the blame in an even-handed way, which has prompted a large number of people to suggest that this was deliberate and that the report is a whitewash. I do not believe that but it is ineffective in its production and its presentation because of this lack of blame and because it refuses, maybe because of its terms of reference, to name names. We do not come out better informed about what happened. Virtually everything, despite the number of witnesses interviewed by Mr. Nyberg, is already in the public arena.

What is interesting is the relationship painted between the various leading players in the story of the banking collapse. It is a sinister and alarming relationship. Mr. Nyberg criticises the Financial Regulator for what he calls a lack of scepticism. He criticises the auditors for not being in what he calls challenging dialogue with their clients in the banks. He criticises the Department of Finance for being weak in its persistence in coming to the Minister and saying that too much money from the banks was going into property. He criticises, above all, the boards of banks for being inadequate in many ways. What this tells us is that there was a circle of people who were frightened of talking to each other in honest terms, because there was such a cosy relationship between them that anybody who raised the flag and said, "This has to end" would be ostracised. We saw that in Mr. Nyberg's criticism of the fact that people whom he called "contrarians" were in danger of losing their jobs. He was not specific about where these people were — whether it was in the Central Bank or in the individual banks — but it looks as though they were in the banks.

Above all, his criticism of the boards was damning. This is important, because there is something we can do about it. Mr. Nyberg said that the board members did not understand what was happening and were too dependent on management. They went for consensus agreements, meaning that they were frightened of speaking up about matters on which they were not suitably briefed or did not have a particular knowledge. That problem is one that the Minister can remedy now. Although the Government has the right attitude in wanting to reform the banks, the response has been pathetic. For the Minister to say that his remedy for boards of management is to ask the same boards to produce a board renewal plan is completely unacceptable. The last people he should be asking for a renewal plan for the board of AIB is the board of AIB. He should be doing it himself. That is the board that gave Colm Doherty the €3 million we have been discussing for the last few days, yet the Minister is going to ask the board to provide its own renewal plan. It is totally unacceptable.

What does the Minister propose to do about the dummies appointed as public interest directors? These are the same people who stood over and signed the contract of Colm Doherty and allowed it to be honoured. Will those people — Mr. Declan Collier and Mr. Dick Spring — be allowed to stay on the board, or will the Minister remove them? Those people, and similar nominees on all the other boards, should be removed immediately.

Deputy Richard Boyd Barrett

The Nyberg report spectacularly fails to identify the causes of the financial and economic crisis in simple and straightforward language. Some €1.2 million was spent on producing 100 pages of insipid financial jargon and meaningless psychobabble that blames everybody and nobody at the same time and explains little or nothing about what created the financial and economic crisis. It is evident, however, that both the former ruling party, Fianna Fáil, and the new Government of Fine Gael and the Labour Party welcome it precisely because it blames everyone and no one and tells us nothing about how the crisis started. As a result the report gives us no direction on how to deal with the crisis or its causes.

The banking crisis did not result from herding, group-think or other psychological explanations and certainly did not come, as this report at times dangerously suggests, from the action of the majority of Irish people. It did not come from "misjudging risk", as the title of the most misnamed report I can imagine suggests. It resulted from greed. The report should be called "Misjudging Greed". The crisis came about because of the staggering greed of bankers, developers and super wealthy elites in this country and internationally who were cheered on by the political establishment on almost all sides, in both this country and the EU, where an economic doctrine of greed and profit was promoted. They were also cheered on in that regard by much of the mass media. The idea that all of us, or even the majority, went along with this nonsense is insulting in the extreme. Ordinary people knew this. They could see the madness as hundreds of thousands of profit-driven private apartment blocks and office blocks were shooting up all over the city while ordinary people looking for housing on housing lists could not get a house for love nor money. They knew this was mad and could see it as such, being driven by profit. Nonetheless, it was cheered on by the political establishment in this country and in Europe, was financed by the banks in both areas and cheered on by the mass media.

The proof that no lessons have been learned about the real causes of this crisis, namely, the voracious, relentless greed of a minority in this country and across Europe, comprising bankers and developers, is that now, to punish these people, we talk about tinkering around with regulatory mechanisms. In reality, the real response of this Government to the greed of the people who caused the crisis was to pour €70 billion into the same banks that caused the crisis, thereby crushing our people with brutal cutbacks, austerity, mass unemployment and emigration. This Government refuses to reverse the policies of the last Government which caused the crisis in the first place.

A further and even worse proof of the failure to learn any lessons from the crisis and its causes is the Government's plan, by selling State assets, to do to the real economy what was done to the financial sector. It plans to hand over those valuable assets to the same corporate vultures who caused the financial crisis. They can then do the same to the real economy as they did to the financial system. This is a recipe to keep going down the same road of disaster at the expense of ordinary people. It is a load of rubbish and we should point the finger at those responsible.

Deputy Clare Daly

I am incredibly underwhelmed by this report. We could have gone across the road to Trinity College and paid somebody considerably less to produce a report which tells us what everybody knows. It mentions flawed lending overseen by silent observers and enabled by public authorities. We know all this. By blaming everybody, in essence the report states that nobody is responsible. I absolutely reject that viewpoint and, in particular, the implication that the victims of this crisis, those people who were forced into buying property at the top end of the market, who paid considerably over the odds for structures that are, in many cases, unsafe, who are saddled with 40-year mortgages, somehow contributed to the crisis. I do not agree with that. The reality is the roots of the banking problem were not in misjudged risks but arose from pure naked greed, profiteering and speculation on the property market. It is a system called capitalism.

It began at local authority level where members of Fianna Fáil and Fine Gael, in the main, facilitated the wholesale rezoning jamboree that made people overnight millionaires, a process that ultimately carried over into house prices. People did warn about what would happen. People such as my colleague, Deputy Joe Higgins, were told by the former Taoiseach, Bertie Ahern, to go away and commit suicide because they were talking down the party. People knew what was going on. The problems were deliberately facilitated by a strategy of personal enrichment carried on by some of the wealthiest people in Irish society, such as Sean Quinn whose role was well highlighted today in an article by Vincent Browne in The Irish Times. What went on in regard to Sean Quinn’s shares was an unbelievable defrauding of, ultimately, the taxpayer. He was facilitated by Anglo Irish Bank executives, Morgan Stanley, the regulator and the Central Bank. Everybody knew about it yet nothing was done. There is no recommendation in the report for legislative changes concerning fraud, reckless endangerment or any other such issue.

The report is silent on the fact that it was German, French and British banks which lent to get in on the act, thereby fuelling the property bubble under the eye of the ECB which also continued to contribute to the situation. Now we are supposed to believe these are the people who will save us. The reality is those at the top of society, aided and abetted by their masters — or servants — in Dáil Éireann whom they had paid, gambled on the economy and we are paying the price for it. The irony is that we will sit here in the future to discuss another report on the current debacle and will make the same point, namely, that nobody knew. Everybody knew; then and now.

Deputy Thomas Pringle

The report of the commission of investigation into the banking sector in Ireland appears not to lay any blame on any individuals or institutions for the collapse in the banking sector and the economy. That is not the case. The blame lies squarely on all the bodies involved in Irish banking — the Government, the Department of Finance, the Central Bank, the Financial Regulator and the actual banks.

It is beyond belief that nobody knew what was coming or that it had not been signalled. Rather it seems there was a culture of preventing a paper trail by giving verbal briefings on the difficult issues with a consequent lack of proper record-keeping by the parties at those meetings where verbal advice was given. Previous reports have highlighted the lack of note-taking at meetings. The Nyberg report criticises the lack of record of what was discussed at the fatal meeting in September 2008 when the bank guarantee was introduced.

The report states that if accurate information on the banks' exposure had been available at the time steps could have been taken to mitigate the extent of the disaster. However, at a later stage in the report it is stated there appears to have been a market perception that the Irish banks were excessively exposed to the property market and the consequent risk of bad debt. If the markets were aware of the problems, looking in from the outside, the information had to be freely available. The only conclusion is that the political will was that nothing should be done and the party should continue. I believe, as is stated in the report, the notion that a great number of people in very responsible management and watchdog positions insisted until the end they had no idea that a serious and acute problem existed is not true. They chose to ignore the signs.

The Government must ensure the culture of shooting the messenger is never again allowed to carry the day. The most worrying part of the entire report is that contrarian views were marginalised and people who were concerned stayed silent to avoid sanctions. People believed they might lose their jobs if they spoke up. When the Taoiseach of the day could tell people who expressed concern they should commit suicide huge pressure was placed on those who had concerns to stay silent. That feeling was strengthened.

The Minister missed two very important recommendations in his summing up of the report. The most important reforms that should come out of this include proper record keeping of verbal communications and meetings not only to protect the taxpayer, but also the advisers or officials who may be blamed for saying that they did not give certain advice. Also, a proper system is required that encourages debate and discussion of other outcomes, that does not in any way penalise the contrarian view but which gives such views a fair hearing and which ensures a reasoned argument outlining why certain advice is discounted. This is obviously necessary. It has been outlined extensively in the report and should be taken on board by the Government. I appeal for these two recommendations to be added to the Minister's recommendations.

Minister for Social Protection (Deputy Joan Burton)

This is the third in a series of reports commissioned by the former Minister for Finance on the catastrophic banking crisis. The question of how much this report adds to our knowledge should be asked given that its final cost will probably be significantly in excess of €1 million.

Essentially, the report presents a European style format regarding its consideration of the wider failings that led to the catastrophe in Ireland. The commission and the two previous investigations were held in private and it is difficult for ordinary members of the public, including public servants who work hard and people working in jobs and businesses who find that they have personally suffered significant loss of income, employment or business, to make judgments.

If Fianna Fáil is to be believed, the report blames everyone and in blaming everyone it blames no one. This is not so. There is a detailed analysis in the report of how the system in Ireland was overtaken by a mania, as it is termed, for property, based on greed and the notion that one could have a banking system or a bank that could grow at 25% per year and, further, that people who were otherwise seasoned observers, whether auditors, accountants, on the boards of banks or brokers, did not question this scenario.

This is important in terms of the report and Mr. Nyberg. His is one of several people now studying Ireland. The person who has best painted the picture so far is Michael Lewis of Vanity Fair. He wrote an exhaustive article and interviewed many people on the record, including myself and the former Minister, Deputy Lenihan, with regard to how the crisis happened.

The work of Mr. Nyberg reminds me in a way of an old book published many years ago on anthropology by Margaret Mead, entitled Coming of Age in Samoa. Now, academics are covering Ireland to identify what happened leading up to the Irish catastrophe and how it happened. Like tulip mania in Holland centuries ago, it is centred on greed and systemic failure. Even if the report does not address this issue, it is centred on the critical failure of the Government of 14 years to be in command and control of the institutions of the State. As members of the Government, the then Ministers were charged with being in overall control and oversight. That is a fundamental fact.

While the report has addressed the tight terms of reference which Deputy Brian Lenihan, as the then Minister, gave it, it does not include consideration of the responsibility of the Government for what happened. The terms of reference of the report specifically addressed issues including the boards of the banks, the auditors, the regulatory system, the Central Bank and the Department of Finance. However, the Government and the Ministers were not put in the frame in this specific report. It is important to state as much in fairness to Mr. Nyberg.

The report has several recommendations and the conclusions reached highlight weaknesses that must be addressed. However, the report does not contain new insights into what could be done to prevent a recurrence or a specific policy of administration designed to give the taxpayer comfort, although comfort is what our taxpayers and citizens require. They require a comfort that we will move away from this, reform and restart the banking system and put in place systems to prevent such a catastrophe from happening again.

The collapse of the banking system was caused by a small number of individuals in a handful of privately-owned banking institutions. It was driven by a deadly combination of greed, arrogance and a self-serving disregard for the risks these individuals were taking and for those who sought to draw attention to those risks. It was not a comfortable space for people such as myself. I was accused in this House of not wearing the green jersey because I had the temerity to be critical of the mad tax breaks that were driving the bubble and the mania ever higher and higher. Certain people, especially from the former Government, failed to acknowledge this. The green jersey agenda was where it was at for a long time but, just like the former Taoiseach's suggestion of committing suicide, basically it served to stifle debate and dissent. Let us bear in mind that Professor Honohan referred in his report to a culture of excessive deference in public institutions. That is hinted at in the report as well. There is a suggestion that perhaps some of those in the institutions formed an insight into what was happening but were deterred from expressing it robustly or from flashing a red warning light as to where all of it was leading.

Since all these discussions were held in private the ordinary public is not in a position to make a judgment. However, it is mentioned and hinted at in both reports. The institutions that have brought the country and the banking system to their current position bear primary responsibility for the devastation of the economy and for the consequential financial ruin, personal and public debt, unemployment and the shattered hopes of hundreds of thousands of families and communities. These individuals are personally culpable and should be made fully accountable for their actions. This is not only a matter of justice, but a vital step towards ensuring that similar devastation cannot be caused by other individuals or groups in the future. We must create a different and better Ireland from this debacle.

The situation of Anglo Irish Bank and Irish Nationwide is highlighted in the report as being the rotten core. The former Government should have taken action around the time of the Northern Rock issue when former Taoiseach Brian Cowen was the Minister for Finance. At the time he stated in an interview that there would be no bailing out of any banks. I took issue with him and tested him on this. However, as soon as the flag went up he completely changed his tune.

This report should form an argument around the need for a referendum that would give proper powers of inquiry to an appropriate committee of the House in a structured way to allow for questions relating to accountability to be put forward in an appropriate framework. That is one important point. The second thing absent from this report, which must be pursued by way of investigation, is that just as the person who takes a bribe is responsible for taking the bribe, the briber also has a responsibility. I believe the report skates too lightly over the responsibilities of the institutions of the European Central Bank in respect of the supply of credit. As all of the reports set out, the primary responsibility rests with Ireland and the greedy institutions and individuals who drove the bubble and the mania and that must be acknowledged.

The European Central Bank, however, bears some responsibility for its involvement in the supply of credit to a peripheral economy in which the economic cycle was at a different stage, as it is now, from that in Germany. The eurozone and the euro have brought enormous advantages to this country, but that aspect must be examined in a serious way. It does not, however, absolve the previous Government of culpability, although the role of the ECB and the lack of measures it exercised must be addressed.

To rebuild the banking system and restructure the public sector to do more with less money; to restructure the domestic economy to be more efficient and have lower costs, including for hard-pressed consumers; and, most importantly, to set the trading sectors on a path of sustained growth of output and employment, we must move quickly, decisively and expertly on our path to recovery. The Nyberg report tells us how Ireland lost the last war. The Government must now campaign to put the country back into full recovery mode. The measures outlined by the Minister for Finance set us on that path, but we must also bring to an end the culture of business impunity that has persisted for decades.

Deputy Sean Fleming

I welcome the opportunity to contribute to this debate. The Minister for Social Protection referred to the Government being specifically excluded from examination in this report by the narrow terms of reference drafted by the previous Government. She knows that is not the case; she knows that the former Minister and former Taoiseach were interviewed for it. The terms of reference specifically stated the Regling and Watson report and the Honohan report were to be taken into account in the work for the Nyberg report; both commented on Government actions during the crisis.

I welcome the fact that this report was completed within six months. Normally we set up tribunals of inquiry that we expect to report quickly but which are still ongoing years later. There is a trade-off between carrying out examinations in private, the public not being able to see interviews and coming up with a quick report and having an open tribunal continuing for as long as most people can remember, as has happened in Dublin Castle. It is important to conclude inquiries quickly rather than after ten or 15 years.

This report is light. I use that word because there is a reference to it in the preconditions for the crisis in the executive summary, in which the author states international developments precipitated the crisis, although it did not create them in its own right. I recall the entry of the euro on 1 January 2002. That had a significant role because we were used to mortgage rates of between 12% and 17% and suddenly we had low European interest rates of 3%. People could now borrow a far greater number of multiples of their annual income to pay for a house because the interest rate was much lower. This led to them being able to take out much bigger mortgages which, in turn, pushed up the price of houses and property. The availability of credit resulting from our being in the eurozone and having easy access to substantial credit on international markets was not the case when we had the punt was a significant factor. Borrowing in a different currency attracted risk, but that was removed the day we entered the eurozone.

Mr. Nyberg, being a good European, has been too light on his European colleagues; he left the role of the European Union out of this. The problem was that the day we joined the euro — I forget if it was following the Maastricht or Amsterdam treaty referendum — everyone bought into the currency because it was in our pocket straightaway.

Deputy Mary Lou McDonald

It was as a result of the Maastricht treaty referendum.

Deputy Sean Fleming

There was a conspiracy at European level not to spell out what would be needed to back up the currency. We had the front of house part of the currency without the architecture at the back, the things required to manage a currency and banking and financial institutions which were lending and borrowing under a new currency arrangement. That was not put in place — we are now beginning to put such a mechanism in place — and it led to ambiguity about whether a bank in the eurozone should not be allowed to fail. I am of the simple view that all businesses, including banks, should be allowed to fail and I regret that the Government has a strong policy to allow for two pillar banks. These will be sacred cows and no matter how bad they are and what mistakes they make, they will be too big to fail because each of them will have an amount almost bigger than the GNP of the State.

Upon entering the eurozone, foreign banks opened here. I am particularly scathing of Bank of Scotland which offered 100% mortgages and claimed to be the Ryanair of mortgages and lending; it was anything but. Previously, a person had to borrow or have a deposit of €50,000, but Bank of Scotland Ireland put pressure on the domestic banks to follow suit or lose business. That is where the herd instinct came into play, with people following the leader like sheep following the one going through the gap. To an extent, the report captures the mood in Ireland in that period. It is wholly unsatisfactory to many here because they wanted to see some people crucified in the report and they are unhappy that has not happened.

Moving to the Government's response, the report criticises the Central Bank for not having a proper handle on the issue. The previous Government appointed a new Governor of the Central Bank from outside the system to ensure the internal old boys' network did not have control. The report highlights the faults in the financial regulatory system, states it was not up to the job and points to the actions of the previous Government which brought in Mr. Elderfield from outside who would also not be part of the old boys' club.

The third leg of officialdom that has been criticised is the Department of Finance. The Secretary General at the Department of the Taoiseach is advertising three new Secretary General posts, including the person who will oversee all Government expenditure of up to €50 billion per annum. The only people being invited to consider the job are members of the old boys' club within the public service. I encourage the new Government to insist on that process being set aside because it is not in keeping with the current position in Irish society and the bringing in of outsiders into such posts. We should not continue to promote civil servants who have been in positions during the years because of time served. There is a strong case for that process to be set aside. I look forward to the Government following the good example set on these matters and moving on.

The proposal to hold a referendum has been the main response of the Minister for Finance. It is, however, important to tell the people when we are holding a referendum to give more investigative powers to Oireachtas committees that no Oireachtas committee can achieve a conviction. In Ireland we separate the Judiciary from the Legislature. The only institutions which can impose criminal sanctions and send people to jail are the courts. The only report I want to see after all of this is on the trials I hope to see resulting from the work of the Director of Corporate Enforcement and the Director of Public Prosecutions, whereby those who have done wrong will be brought before the courts.

I wish to put down a marker to the Director of Public Prosecutions and others involved that no one should be given immunity from prosecution in respect of any of the cases which may arise. There is always a tendency to give immunity to a certain person to provide evidence to convict another individual. If we pursue such an approach, it will help to undermine the system. Not providing immunity might make it far more difficult to obtain successful prosecutions. However, the public would be outraged if sweetheart deals were concluded with anyone who was implicated in any of the activities which caused such distress, harm and damage to the economy and the welfare of so many citizens.

A large number of the people's mortgages are now greater than the value of their houses and some of them will be obliged to pay them back over 40 years. The older Members of the House would have obtained either 20 or 25 year mortgages. However, there are those who have 30 and 40 year mortgages. We are heading in the same direction as Japan, with mortgages that span almost two generations, which is unfair, at the low interest rate. These are matters which should have been monitored across Europe. When the euro currency was established, those at European level who had experience of dealing with currencies and what happened in the aftermath of the Second World War should perhaps, given that they were better placed that those in the Central Bank, have taken a more direct, hands-on approach to managing and licensing Irish banks.

The new Irish banks are going to be too large for an Irish regulator to manage. There is a case for banks to be managed on a Europe-wide basis rather than in the countries in which their head offices are located. I do not believe it is possible to have a system whereby 27 different regulators will have responsibility for regulating the affairs of banks in the 27 member states, particularly when banks can operate across borders. I also do not believe it is possible for banks to operate across the 27 member states and then be regulated by someone in a particular jurisdiction where a certain standard applies.

A common standard should be adopted across Europe. That would be a good development and give confidence in respect of the banking system. In addition, banks which are not performing would be allowed, like any other business, to fail. There is no reason that banks should be granted indefinite guarantees.

I will support any proposal put forward on holding a referendum in respect of detailed inquiries being carried out by the Oireachtas. I would be far more concerned, however, with seeing people being brought before the courts rather than being compelled to come before the Houses. The people want those responsible for our woes to be brought before the courts.

Minister of State at the Department of Transport, Tourism and Sport (Deputy Alan Kelly)

When reading the Nyberg report last night, I recalled a moment when the scale of the devastation the Irish banking crisis came to the fore at the European Parliament. In my former capacity as an MEP, I was attending a private meeting with Commissioner Almunia — the man in charge of state aid rules in Europe — to discuss the matter of the bailout of Anglo Irish Bank. The Commissioner, without the aid of notes, proceeded to list off every Irish bank and building society and had intimate knowledge of what he believed to be the ultimate debt of each institution. I recall feeling the blood drain from my face as he laid out, in concrete and unforgiving terms, the damage heaped onto the European financial system by the Irish banks. I remember thinking it would not be years but rather decades before we extricated ourselves from this mess.

The level of transparency from Commissioner Almunia was in stark contrast to the previous Government's claims that we had turned the corner and that ours was the cheapest bank bailout in history and its denial of accurate reports of financial problems. I remember thinking at the time that our business and political cultures were in an extremely unhealthy state. Why could Commissioner Almunia impart that information to me when the then Government and its Minister for Finance — who met the Commissioner on the day prior to my meeting with him — could not? I obtained the very distinct impression that the European Commission was entirely fed up with the misinformation of Irish banks and the then Government. The previous Government spared us, Europe and possibly themselves from the truth. Professor Nyberg certainly suggests nobody influential wanted to know the truth or communicate it to us.

If there had been more transparency and if there had been greater honesty and analysis when it came to the banking and property sectors and the economy, could we have prevented the crisis? If we had analysed matters on the basis of a simple question with regard to who we were helping, would our position now be different? Did we ever ask who was getting rich and who was doing well? Did we ask whether innovation or speculation was driving the economy? Were we creating wealth or just moving money around? In the end, it was money belonging to the European banks that was moving around rather than our own. If we had engaged in a discussion of these matters, then perhaps the hysteria, the herd and the "groupthink" to which Professor Nyberg refers may not have taken over.

There is one line in the report which, for me, best expresses the cause of this crisis. Professor Nyberg describes what happened in Ireland as "the spread of an ultimately irrational point of view". How did we permit irrationality to take over? This happened because we allowed the agenda of greedy vested interests go unchallenged. There was a culture within the banks which rewarded recklessness. Anglo Irish Bank and the Irish Nationwide Building Society were lauded as the great property pioneers of the new 21st century. Many commentators with whom Members will be fairly familiar also lauded these institutions at the time. They have, however, certainly changed their tune in the intervening years, which is amazing.

The boards of our banks were stacked not with people providing prudent oversight, but rather with those who would rubber stamp decisions and pat the back of the likes of Seánie Fitzpatrick. The concept of risk seemed to evaporate, the voices of reason were drowned out by those of greed and a feeling of invincibility pervaded the highest levels of the banks. Aggressive targets for growth became more important than the concept of sustainability. If we did not have enough deposits in our banks, we could go abroad and obtain finance on the wholesale markets, and why not? Property never loses its value. If Anglo Irish Bank was doing it, then AIB had to do it and if they were doing it then they must have been right. As a result, all the banks followed suit. If the banks were doing it and if our best builders and property developers were doing it, then it must have been right. We know now that the premise upon which these assumptions were based was entirely false.

While this culture may not have created the property bubble outright, it sought to feed and sustain it. In fact, it sustained it long past its due time. How was it sustained? Those within the culture were dealing with a complicit Government which never questioned what was going on in the way that it should have done. Said Government fed the property bubble with a series of tax breaks, whether under section 23, section 50 or whatever.

When I was a lowly executive in Bord Fáilte — what is now Fáilte Ireland — in the early 2000s, I recall listening to people who were privately of the view that the then Government's tax break policies for hotels were excessive and crazy but who felt that they had to support them. We ended up with multiple hotels in areas where there was hardly a market for one. Everyone present is aware of the areas to which I refer. I also recall being told that certain developers were becoming worried that the tax breaks would end but were confident with regard to ensuring they would be extended for a year or two by their friends in the then Government. What is the current position on the hotels to which I refer? Some hundreds of millions were spent and wasted and many of these hotels have either gone out of business, have been taken over by NAMA or remain in existence purely in order to retain the tax breaks. In normal circumstances such hotels would be unable to trade. It is in such establishments that people can avail of bed and breakfast rates of €29 per night. This, in turn, is creating an uncompetitive environment for other hotels, many of which are family owned and which are either struggling or closing their doors.

The previous Government turned a blind eye to the warning signals because it did not want to interfere with the agenda of its friends, namely, the builders and developers. A cosy consensus was adopted and the bubble grew larger and larger. The then regulator seemed to believe that upsetting the property bubble would not be a good regulatory measure and consequently bought into the consensus to which I refer. When the bank guarantee was first brought into being, Mr. Patrick Neary, the then chief executive of the Irish Financial Services Regulatory Authority, IFSRA, stated the banks were more than fully capitalised. He was technically correct if we accept one assumption, namely, property never loses its value. The concept of a property loss seemed to be extinguished for ever, even though the boom-bust cycle typically defines the operation of the property market in a modern economy.

What did the Department of Finance do? It stated it was not its job and focused purely on the accounting aspects of government and was not encouraged to do anything else. The Department's view was that money came in and was then spent. It was no one's job to question how or why that money was coming in but rather it was the responsibility of the regulator to look after banks. The Department believed it had no responsibility at all in this matter. Everybody minded their own patch and bought into the greedy idea that property would sustain itself forever. As a result, we neglected the real wealth creators of the economy — our manufacturers and exporters. In that context, I refer to food co-operatives, farmers, software exporters and communications businesses which are the drivers of real growth and which make something tangible and then sell it. We prioritised speculators, builders, and the financial sector. The latter is the sector of the economy which merely moves money around but does not create it or distribute it fairly.

When it all came crumbling to a halt and the competitiveness of the economy was eroded, we woke up and realised that primary jobs were needed. Lost in the mania of property hysteria, the most important sector of the economy was neglected. As a result, there are now 450,000 people unemployed and some 1,000 young people are leaving the country each week. That is an absolute disgrace.

I have a final point on financial regulation which is worth making. If people believe lessons were learned once the crisis hit, they should recall the following. Last March, the Financial Regulator initiated a capital review of AIB as part of EU-wide banking stress tests. Three years after the crash started, that test gave AIB a clean bill of health in the summer of last year. I agree with my colleague, Deputy Joan Burton, in her criticism of EU institutions. They do not come out smelling of roses either. By September we had black Thursday and then the sovereign bailout. The bottom of the barrel has only now been found, four years from the start of the crisis.

I hope yesterday was a watershed moment in Irish economic history when an objective and politically neutral analysis of our crisis was carried out. Spared the showmanship of electoral politics, Professor Nyberg articulated an interpretation of events many of us know to be true. Regretfully no individuals were named. I hope this can be dealt with by the courts.

We all knew broadly what would be in the report and did not learn all that much that was new but it does provide a useful backdrop for us as a Government moving on from this crisis. As a Government, the challenge and the opportunity is to capture the knowledge and memory of Professor Nyberg's research and to nail down the right legislation, regulation and working practices that will prevent such a crisis happening again.

We have to take a number of specific actions arising from this. Oireachtas committees must be given the power of effective investigations into matters of serious public interest. Europe has already taken steps to curb the bonus culture paid by bankers. During my time in the European Parliament, we were successful in securing agreement for stronger European financial regulation of insurance, pensions, banking capital requirements and other financial products. In time this will lead to stronger financial regulation across Europe. However, there is much more to be done at home. Our financial regulation needs to be robust in order that our reputation as a place of doing business is restored. We need to re-engage with European countries, accepting and demonstrating that we learned from the mistakes of the past and that we are willing to work with them. We must not just approach them with an apology and a begging bowl but as a committed member fighting our own corner.

We need to bring a new type of thinking to the economy. We need to reward those who create real and tangible wealth over and above arrogant speculators and professional gamblers. We need to set the tone for how business is done in this country and show we are serious by having whistleblower protection legislation. Whistleblowers should be rewarded and protected, not isolated and undermined. The Government will change this. We will be more transparent, more ethical and critical in our operation of the financial system. That is what we owe the voters. As a Government we must remember that the financial regulation agencies, the banks and the wider business community all take their cue from the signals being sent from the Government. We need to demonstrate the values of fairness and community in everything we do and create a business culture that rewards innovation and hard work and where we can make the best products in the world and sell them for our own profits.

That is the future but the lesson we must learn from all of this is that we should be sceptical when things that may seem instinctively unreal become accepted conventional wisdom. Whether one is of the right or the left or independent, a lack of willingness to critique the powers that be of the day is dangerous.

Deputy Mary Lou McDonald

I was struck, while listening to one of the previous speakers, by the fact that the phenomenon we are describing as herding, group-think and mania predates the bank crisis in the political culture of the State. I was struck by this when I heard a Member from the Fianna Fáil benches talk about the jeopardy that entry into the eurozone brought on the State. He recalled the time of the Maastricht treaty and its passage. I have a clear recollection of that time. When we were making a momentous decision about our currency and our sovereignty there was no debate. It did not happen in the public domain but worse, it did not happen within politics. The former Taoiseach, Mr. Albert Reynolds, went to Brussels——

Deputy Brian Lenihan

It was Edinburgh.

Deputy Mary Lou McDonald

——and secured a very hefty sum in Structural Funding, returned to our shores and the debate was over.

Deputy Robert Dowds

Was Deputy McDonald in Fianna Fáil then?

Deputy Mary Lou McDonald

It is only now, when the limitations and jeopardies of membership of the euro are clear, that we are having this discussion. When Professor Nyberg makes reference in his report to group-think and to the herd mentality he is referring to that phenomenon. Given that the incoming Administration is largely pursuing the same path as the previous one, which it so heavily criticised, we are not out of the woods yet with regard to the group-think phenomenon.

I agree with previous speakers that the report tells us nothing new. I am also conscious, as we debate this matter, that people outside the Dáil are sick and tired of rehearing the story of the failures of governance, regulation and political and professional leadership. They are doubly sickened by the fact that taxpayers, homeowners and those who are now struggling carry the burden of this catastrophe.

I will focus my remarks on chapter 3 of the Nyberg report, which deals with the role of external auditors of the banks prior to and in the immediate aftermath of the banking guarantee. The report notes that all of the banks covered by the guarantee received unqualified audit reports throughout this period; therefore, the question that arises is, why did the banks require State support in 2008 so soon after each of them had received an unqualified audit report from various auditing firms? The report does not offer a definitive conclusion on this question. It does point out that the ongoing recapitalisation of the guaranteed banks by the State has protected external auditors from legal challenges, which are commonly mounted by liquidators against auditors when businesses collapse soon after clean audit reports.

The report's reference to "the extent to which large parts of Irish society were willing to let the good times roll on until the very last minute" will stick in the craw of families throughout this country struggling to keep their heads above water. Let us be clear. There is a very particular section of society who chose to let the good times roll. I mean by that the political classes and definable sections of the professional classes. Fianna Fáil and the Greens, like Governments across the OECD, bought into a policy consensus that believed long-term growth should be based on deregulation of domestic and international banking. Government actively incentivised people to invest in financial speculation rather than in the real economy. Fine Gael were and still are part of that consensus

Auditors gave clean bills of health to banks that most would have believed were insolvent. Ernst & Young was paid €1 million each year for the nine years prior to the bank guarantee for auditing the accounts of Anglo Irish Bank. It is worth noting that just last week the former auditors of Anglo took a High Court challenge to halt an inquiry by the Chartered Accountants Regulatory Board into the firm's role in auditing the bank's books. In 2009 Ernst & Young also declined an invitation to come before an Oireachtas committee hearing on Anglo Irish Bank.

On 20 Feb 2009, after Anglo Irish Bank had been nationalised and five months after the bank guarantee, the 2008 accounts for Anglo Irish Bank were published and Ernst & Young presented its audit report. The report was clean and unqualified and stated that Anglo Irish Bank had made a profit of €784 million in the year to 30 Sept 2008.

Let us consider this. In September 2007 the issue of sub-prime lending first raised its head in the United States. On St. Patrick's Day 2008 the share price in Anglo Irish Bank dropped like a stone. In July 2008 the former Taoiseach met Seán FitzPatrick in Druids Glen. In September 2008 Lehman Brothers collapsed in the United States and on 29 September 2008 the now infamous Government guarantee was conceived and born. In the months that followed we heard the reports of the window dressing with Irish Life & Permanent, the golden circle and the concealed loans to directors. Despite all of the above, the auditors accepted the view of the directors that this bank was profitable and solvent. They had a bad debt provision of just 2% of the loan book. It stretches all credibility. The professional auditors could not see how misleading these accounts were. That was then and this is now. Now there is a question for the Minister for Finance as the sole shareholder acting on behalf of the State. Will the Government take action in respect of the auditing firms who clearly played a disastrous role in this crisis? The people want accountability.

The conclusions of the Nyberg report on the role of external auditors also point up specific gaps in the law. In the absence of an express requirement for auditors to have a challenging dialogue with the banking sector on its business models and growing property and funding exposures, many culpable accountancy firms will use whatever gaps they can find in the law to dodge their accountability. The legal, accounting, banking and political classes continue to be protected with no individual or sector properly held to account for what is the worst recession in the history of the State. Funding of public expenditure will be cut year on year as a direct result of the actions of sections of what I call the political and professional classes, those who inflated the property bubble, availed of unsustainable wholesale market funding to line their own pockets and now leave the unemployed, the low paid, middle-income families, PAYE workers and rural Ireland to pick up the tab.

The troika and the Government continue to protect a small cabal by refusing to restructure the banks' unsustainable debt. I will finish by asking a second question. Will the Government tell the House what contracts have been awarded to auditing firms by the State or State bodies such as NAMA since the banking crisis? Are any of the auditing firms linked to our failed banks still on the Government's payroll? The Government needs to tell us. Sinn Féin Deputies Caoimhghín Ó Caoláin and Arthur Morgan, questioned the then Minister for Finance, Deputy Brian Lenihan, on numerous occasions about the continued use by the State of auditors linked to the banking crisis. The former Minister would not answer their questions. I hope the Government and the Minister will do so.

Mention was made of public ire and the demand for crucifixions. No crucifixions are required but what people want is accountability and to see individuals brought to book. They also want a new approach and that is what they voted for not so long ago. I have put two specific questions to the Minister for Finance and await his responses.

Deputy Kieran O’Donnell

I am delighted to contribute to this debate. The Nyberg report is very wide-ranging and has much in common with the previous reports but it has also dealt with new areas. It goes over old ground which was also dealt with in the other reports. The lack of proper regulation was probably the most critical factor in the banking crisis. Proper regulation from the regulatory authorities would have ensured that banks would not have been able to go mad in their lending practices and would have ensured proper capital adequacy ratios and the type of stress test to be applied to mortgage applicants. It was madness that mortgages of 100% were given to first-time buyers. Some people were even given mortgages higher than 100%. This is a result of lack of proper regulation.

The banks lost sight of their business. The Nyberg report states that providing credit is not a sale of bank services but rather is the acquisition of a risky asset. This is a fundamental rule and the banks lost sight of it. They concentrated on sales and took no notice of the risk. The taxpayer and the ordinary citizen paid the price. Not only taxpayers but also those on social welfare have been affected. The use of the term, "taxpayer" is not correct because the banking crisis has affected every person living in Ireland.

The Nyberg report highlights the lack of proper planning. In mid-2007, post-Northern Rock, the planning was inadequate. Deputy Brian Lenihan referred to the scoping exercise carried out by the Department of Finance in early 2008. It carried out further exercises in February and April 2008. A domestic standing group met from June 2008 onwards. The special resolution regime was examined but it was stated it might undermine the market. However, Mr. Nyberg is of the view it could have been carried out in a confidential manner and it could have been parked, so to speak.

I refer to the Watson and Regling report and the Honohan report and the troika. The Honohan and Nyberg reports are ad idem that the records are sketchy with regard to the decision on the bank guarantee when Deputy Lenihan was Minister for Finance. We do not know what happened or who made the decisions. Dr. Nyberg states the absence of a paper trail is perhaps understandable but it seriously complicates the allocation of specific responsibility with respect to a major policy decision with far-reaching financial consequences for Ireland. Why was a temporary measure such as a six-month guarantee not introduced? Why was a blanket guarantee given that was twice our gross domestic product, a total of €275 billion? Dr. Nyberg refers to the guarantee being an initial success but this was a pyrrhic victory.

The Government was indecisive thereafter and it undermined Ireland's credibility in the eyes of the market. It was a dreadful decision in the way it came about. The Government took the opposite decisions to what should have been decided. It is critical now to have a comprehensive, accurate picture of what happened when this guarantee was put in place. The consequences of the Abbeylara decision should be dealt with by referendum in order that an Oireachtas committee could examine all of the issues involved.

At the time of the guarantee it was clear that Ireland was not alone as this was a European-wide problem of varying degree requiring a European solution. It would be interesting to hear Deputy Brian Lenihan's thoughts on why, at the time he put the guarantee in place, he did not seek to discuss with our European partners precisely what could be put in place on a structured basis. The horse had bolted by the time the banking guarantee had been in place. That issue needs to be dealt with.

I would like to refer to how the report deals with some issues other than the guarantee. It is quite critical of the Department of Finance. It claims that departmental officials sometimes sat back and waited to see what way the Minister was jumping. I note that in 2004, the Department of Finance prepared a memorandum for the incoming Minister — former Deputy Brian Cowen — requesting, in effect, that tax-driven property reliefs be pulled back. That did not happen, however. If one examines the history of our property bubble, one will appreciate that it took off with a vengeance in the 2002-03 period. Ireland was an export-driven nation until 2002. Exports dropped in volume terms from 2003 onwards, with property going up. That created a property bubble.

The report is highly critical of the role played by the Financial Regulator. It refers to the lack of expertise in that office, the Department of Finance and the Central Bank. I welcome the decision of the Minister for Finance to establish a dedicated unit in the Department to deal with bank restructuring. The report suggests that the Financial Regulator's officials engaged in light touch regulation of the banks but seemed to be quite heavy-handed in terms of consumer affairs. Did they feel comfortable in that area? Did they not have the skill sets to deal with the banks?

I will conclude on a positive note. I welcome the Minister's intention to expand the role of the auditors. In America, the auditors have a far wider remit, which involves expressing their views on whether CEOs and financial controllers are engaging in reckless activities. That has led to people being held accountable. I welcome the Garda investigation into Anglo Irish Bank. I am pleased that the Director of Corporate Enforcement is reaching conclusions and intends to go to the Director of Public Prosecutions. This report indicates that we are through the process and need to get conclusions. I suggest a public inquiry by the Oireachtas, after the Abbeylara restrictions have been overcome, is needed.

Deputy Stephen Donnelly

I would like to share time with Deputies Mattie McGrath and Joan Collins.

Acting Chairman (Deputy Joanna Tuffy)

Is that agreed? Agreed.

Deputy Stephen Donnelly

As has been said, the Nyberg report confirms what some knew and everyone suspected — that the institutions of the State failed to protect the people; that political decision-making, particularly with regard to the blanket guarantee, was ill-informed; and that a culture of greed and incompetence prevailed in the banking sector. Now that we have seen the Nyberg report, we need to reflect on what we can do and what we can change. I wish to add a little context before I make some suggestions in that regard. We learned yesterday that the chief executive of AIB is to receive a €3 million pay-off. Last week, Moody's rating agency downgraded Irish sovereign debt to one notch above junk status. Yesterday, Moody's downgraded the unguaranteed senior debt in the banks to junk status.

The Minister for Finance has understandably made wide reference to the positive market reaction to his announcement on bank restructuring. The yield on ten-year sovereign debt fell from 10.2% to 9.1%, which was fantastic. That has climbed again in the past week due to the return of market uncertainty, however, and was back to 10.2% today. In other words, every piece of market optimism in reaction to the Government's ideas on bank restructuring has been completely wiped out in approximately ten days of trading. I am sure there are many reasons for this, but I would like to focus on one. The Nyberg report tells us that the banks failed in the past, which we knew. The multimillion euro pay-out to the chief executive of a failed bank tells us that the banks are still failing today. The fact that the banking debt is junk and the Irish sovereign debt is just one level above junk tells us that the markets believe the same institutions will fail in the future. I ask the Government to rethink its policy options in light of all of this evidence. We are pinning our hopes on borrowing a vast amount of money, which we cannot afford to borrow, and stuffing it into institutions which we know have failed in the past, are failing today and — the markets believe — will fail in the future. I ask the Government to consider that all of us can do better than this.

During one of the first sittings of this Dáil, the Minister, Deputy Michael Noonan, asked for ideas from the opposite side of the House. He said he was not hearing any ideas. I would like to finish by offering a few ideas to the Government for its consideration. I suggest it should not repay the €35 billion in outstanding bonds. If this is a problem, the Government should get creative. It could consider freezing them for five or ten years and finding a halfway house where we can take the pressure off. It could implement a debt-for-equity swap on the others. The Government could remove the sovereign guarantee from all the banks bar one — it could choose Bank of Ireland or the AIB and accept it will be tough for a while — and thereby minimise our liability. I suggest a national reconstruction bank that was mentioned in the programme for Government should be established as a matter of urgency. The Government could take out insurance on the remaining bank liabilities, the commercial loans, the non-NAMA development loans and the mortgages. I propose the removal of the senior teams from the banks. Clearly, that is not happening at the moment. Deputy Shane Ross spoke well on this matter. I suggest the Government should set up a failure regime and instigate radical reform in the Department of Finance with the assistance of banking experts and economists, etc. I would be much obliged if the Minister of State, Deputy Dinny McGinley, would bring those ideas back to the Minister for Finance and his team.

Deputy Mattie McGrath

This is another costly and expensive report that tells us little or nothing we did not already know. Dr. Nyberg has concluded that a national speculative property "mania" led to the Irish lending splurge. He has found that the banks engaged in lending to the point of self-destruction. He has failed to attach any blame to the various players. To the best of my knowledge, the players in question were individual bank board directors and executives; internal and external auditors, who seem to have done nothing; former Central Bank regulators; banking recruiters; and individual politicians and political parties. There is no point in passing the buck as it has been passed for long enough before we came to this sorry stage. I know the electorate will be disappointed with the new Government, which made many commitments and promises but has adopted the same policies that were pursued before the general election.

Fundamentally, Dr. Nyberg has suggested that the various players in this crisis, like the nation as a whole, invested in the frenzy and played a role in the boom and bust cycle. I do not think that is true. I do not believe ordinary citizens played any role in it. Given that they had no say and no involvement in this affair, it is outrageous that they are now being asked to take the full blame for it. The production of the report cost €1.3 million. It is another report on top of previous reports. What is wrong with us? Why can we not get to the bottom of the matter? Why can we not come clean? Why are we not honest with ourselves and with the public? As it is Holy Week, it is not good enough that the ordinary men, woman and children of this country are being crucified. The people will not tolerate it.

This is the latest in a series of toothless reports about the financial crisis. Certain investigative journalists have done more and better work to examine the causes and to identify the sources of the crisis. I am disappointed that the Garda Síochána has not brought charges against anybody. We seem to be trudging along with an intolerable debt that we have no way of repaying. I am aware of people involved in community groups and ordinary business people who are putting their hands in their pockets to try to pay their wage bills, maintain people in jobs and keep society afloat. The banks are not lending a shilling to anybody. They are not laughing all the way to the bank anymore — they are laughing at us because they are getting away with so much. They know they are getting away with a great deal, yet there does not appear to be any desire to require accountability. On the contrary, senior bankers and regulators are being rewarded for not doing any work and people are being constantly paid off. This approach is sick and would be laughable if it were not so serious.

Deputy Joan Collins

The Nyberg report is the third report done on the banking crisis and, as other speakers noted, we are no wiser about what occurred. The report does not name names and we still do not know what happened on 29 September 2008, the day on which the bank guarantee was given. The 200,000 word report includes only five paragraphs on what occurred at the meeting in question for which minutes were not kept.

According to the Nyberg report, discussions up to and on 29 September were based on very deficient information. The assumption was that there were no solvency issues in the banks, merely temporary liquidity problems caused by international factors. Why was the information so deficient? The report states that from mid-2007 onwards, there was improved co-operation between key institutions and important preparatory crisis management work was put in place. What does this mean? What crisis management measures were taken? What prompted increased co-operation and why were the then Taoiseach, former Deputy Brian Cowen, Minister for Finance, Deputy Brian Lenihan, and senior officials in the Department of Finance so unprepared and ill informed that it resulted in such disastrous decision making? Despite the publication of three reports on the matter, we still do not know the answers to these key questions.

One does not need to be a banking or financial expert or to have read the three reports on the crisis to know that there was a cartel of consensus at work, some of which was driven by fear. When opposition voices pointed out that the market was crashing, they were ridiculed. Speaking to an ICTU conference, the then Taoiseach, former Deputy Bertie Ahern, told critics to commit suicide and, to my dismay, the delegates present responded with laughter.

While the Nyberg report does not name names, I will name a few familiar names today. Of the total salary package of the executive directors of the three largest banks in 2007, Brian Goggin earned €3,998,000, David Drumm earned €3,274,000, Eugene Sheehy earned €2,105,000, Colm Doherty, whose name has become more familiar in recent days, earned €1,663,000, John O'Donovan earned €1,581,000, and William McAteer earned €1,427,000. The list goes on. It is important to name and shame these people time and again. Their names continue to crop up and people are angry that they are getting away with such salaries and pensions.

Mr. Doherty, we learned in recent days, walked away with a pension of €3 million. Why will the Government not impose a 95% tax on the pensions of these individuals? We do not need to change their contracts. If we imposed a 95% tax on their salaries and pensions, we would then be able to invest more in the economy. I do not accept the Government's repeated statements that it cannot address the issue of massive and ludicrous payments and pensions to those who brought the country to its knees.

The Minister for Social Protection, Deputy Joan Burton, pushed all the right buttons in speaking about the previous Government. Why is the Government of which she is a member pursuing the same economic agenda as the previous Government of bailing out the banks? It will also potentially privatise crucial State assets and hand them over to the same profiteers who caused the economic crisis in the first instance. Those who pay the price for the crisis were not responsible for it. Neo-liberal capitalism and greed destroyed the economy. Today, the parents of autistic children gathered outside the Dáil to fight for the rights of the children because money is no longer available for special needs assistants. We must start to make the right choices on behalf of citizens.

Deputy Paschal Donohoe

I wish to share time with Deputy Peter Mathews.

To respond to Deputy Stephen Donnelly's constructive contribution, the reasons for the change in Irish market dynamics in recent weeks include continuing rumours and commentary on possible developments in Greece and the sovereign downgrade of the United States earlier this week by the ratings agencies. These events create an environment within which economies such as that of Ireland will struggle.

Deputy Stephen Donnelly made valuable points which should be discussed. When the Oireachtas committees are established, I hope Members will have an opportunity to have their ideas discussed. One of the important conclusions of the Nyberg report was that dissent and critical discussion were repressed. It would be a tragedy in the current phase of economic depression if such repression were to be repeated. I hope the Oireachtas, through the structures that will be established in the coming weeks, will provide a forum for policy options and ideas to be evaluated.

The most striking line of the Nyberg report is on page 100 which states, "Because the real reason for the crisis is the spread of an ultimately irrational point of view, regulations and watchdog institutions cannot be counted on to be efficient preventers of a systemic crisis". The latter part of the report, which has not yet ignited significant commentary, notes that if all the improvements that are sought in our regulatory regime were delivered, they would not, of themselves, guarantee that a future crisis of this magnitude would not occur again. This is a deeply sobering thought for those who have been elected to govern and to ensure we exit this stage of the economic crisis.

The Nyberg report states there have been only a small number of crises of the magnitude of that experienced by Ireland. This is not the case. In the past 100 years or thereabouts there have been many examples around the world of banking crises triggering profound financial crises in the states concerned.

The second half of the report makes recommendations on changes to the structure and culture of banking and the culture of society in general. These are the areas in which the most radical change needs to be made. The perception among citizens is that taxpayers bail out banks which, in turn, impose costs on taxpayers which they cannot shoulder and ask them to condone behaviour that they will not condone. We have observed many examples of such behaviour, most recently in the form of a payment which was publicised earlier in the week. The costs imposed on citizens are vast. The State will have to shoulder €31 billion to bail out Anglo Irish Bank and Irish Nationwide Building Society. A more subtle cost, however, is the profound crisis of confidence in our ability to govern our way out of our current difficulties.

The Nyberg report illustrates that for a period leading up to and including 2007, the State did not have the ability to govern itself. It states clearly that a herd mentality, groupthink and consensus not only resulted in the misuse of critical faculties but led to their virtual suspension in the institutions tasked with protecting the national interest and citizens. As we seek a way out of our current difficulties, it would be unforgivable if we were to make the same mistake again.

One of the recommendations in the report which we must address is the size and cost of the banking sector. The Government has made progress in this respect by seeking to reduce the size of the banking sector and its potential cost to the taxpayer. We must not lose sight of these issues or the need for regulatory improvement.

Deputy Peter Mathews

The Nyberg report does not bring any startling news; neither did the Honohan report. What is startling in some ways is the fact that the Honohan report had as its termination date the date of the blanket guarantee, while the termination date in the Nyberg report is 15 January 2009. What has really torn the country apart, what we have all agonised over and what we have failed to scope properly is what has happened since. In April 2009 the NAMA project, the mechanism for beginning to recognise the loan losses in the banks, was mooted. Only then was there an awareness that there were massive losses in the economy that had to be measured. Having been measured, they have to be allocated and borne by either the investors in the banks which created the assets that imploded, the long-term investors such as bondholders and the citizens of the State.

Is it not an awful shame that we did not have people skilled and articulate in reviewing what had happened and that they did not address what had happened in the period post-15 January 2009 to date? We should remember that Dr. Nyberg only received his instructions in September 2010; therefore, between January 2009 and September 2010 there is a brain dead period in this country. That is a shame because we could learn a lot.

I wish to move on to discuss where we are. I commend Deputy Paschal Donohoe for commending Deputy Stephen Donnelly, which is what it is all about. We must get into sharp focus in a new Dáil the exact picture of where we are, in so far as we can, and tell that story to the people, on whom we rely. At this point, the banks rely almost exclusively on the European Central Bank and the Central Bank — a mixture of both — at a level of €170 billion or €180 billion. On top of the sovereign debt to date as a result of the fiscal imbalances and deficits, the total debt adds up to some €240 billion or €250 billion when one bears in mind the oncoming debt of the package entered into last November, because there are losses of €100 billion that are only now being acknowledged. That is too much for the country to bear.

We must have a banking sector that works; we must capitalise it and energise it with fresh, new, cleaned out management and boards. That operation has begun and will take a little time to complete, although the energy and purpose are applied. We must make sure our creditors — the European Central Bank, in the spirit of solidarity, because that is the phrase which allows it to give assistance to a country such as this, and the remaining bond investors — will take on their share of the losses that have emerged in our banking system. We must do it together in a spirit of co-operation and truth. We must do what is right and again find our courage to do it.

Deputy Michael McGrath

I very much welcome the opportunity to contribute to the debate on the report of the Commission of Investigation into the Banking Sector in Ireland, known as the Nyberg report. The report builds on the work done in the preliminary reports by Professor Patrick Honohan and Max Watson and Klaus Regling and provides further insight into the causes of the Irish banking crisis. Dr. Peter Nyberg is to be thanked for producing a comprehensive report which addresses in a very straightforward way the origins of the crisis.

The Irish banking crisis is a truly sorry chapter in the country's history. The direct cost to citizens is now estimated to be in the order of €70 billion — excluding the work of NAMA which we hope will pay for itself over its lifetime — with incalculable damage inflicted on our reputation. In addition, the cost of not having a banking system that properly meets the basic needs of the economy and has not done so since 2008 is unknown. There can be little doubt but that the frail and limp state of the banking system since the onset of the crisis has impeded our economic recovery. The inability of the banking system to meet the needs of the economy has cost thousands of jobs and made life miserable for so many. Some reports estimate that up to 5,000 people working in the banking sector will lose their jobs as a result of the downsizing and de-leveraging in the banking system. In addition, it should be remembered that thousands of shareholders in the Irish banks lost all of their money, including many who invested their life savings.

I welcome the work of the new Government in seeking to draw a firm line under the crisis, building on the banking policy of the previous Government and the agreement reached last November between the State, the European Union and the IMF. I sincerely hope the strategy outlined by the Minister for Finance at the end of March, underpinned by the comprehensive bank stress tests, will work and that we are well on the road to fixing the problems in the banking system. While we all wish there were easy answers to our banking problems, the truth is there are not.

I welcome Deputy Peter Mathews' contribution. He made many predictions in recent years in regard to the banking crisis, many of which turned out to be true. One thing that concerns me, coming from an expert such as him, is his prediction that there is a further €20 billion of losses on the books of the Irish banks above and beyond what was identified in the stress tests. The fact that somebody of his expertise would make that assertion is a concern because all of us hope we have identified the bottom of the black hole in the banks. I hope his analysis is carefully examined and a conclusion reached in regard to it.

It is clear from reading the report and the two earlier reports that the primary responsibility for the near collapse of the banks rests with the banks. To varying degrees, the different banks departed from the traditional deposit-based business model, abandoned any semblance of proper risk management and engaged in a sustained and aggressive level of lending that threatened not just their own future but the economic future of the country. The report sets out the failures that occurred at a series of levels. The basic ingredients of the crisis have been known for some time: banks engaging in a frenzy of reckless lending to one particular sector, without any regard to risk management, aided and abetted by a hapless regulatory system; free flowing funding from wholesale lending markets; an insatiable domestic appetite for property consumption, and an inappropriate monetary policy at European level. All of this, it must be said, was actively encouraged and supported by public policy for many years.

I am glad Dr. Nyberg highlighted the issue of the reward culture in the banks which played a not insignificant role in the crisis. In paragraph 2.6.3 he notes:

. . . rapid loan asset growth was extensively and significantly rewarded at executive and other senior levels in most banks . . . Targets that were intended to be demanding through the pursuit of sound policies and prudent spread of risk were easily achieved through volume lending to the property sector.

Dr. Nyberg cogently remarks on the herd mentality between different institutions but within the banks executives were rewarded on the basis that the more they lent, the bigger the bonuses they received.

In so many respects, the behaviour of the banks has been reprehensible since the beginning of the crisis. They have sought at every turn to conceal the full extent of their loan losses and misled the Government and the authorities about their true financial position. They resisted change that was blatantly necessary. They have sought to have it their own way on each occasion. Senior bankers have rewarded themselves handsomely, seemingly oblivious to the opinion of the people who have come to their rescue.

Second only to the banks in the hierarchy of blame are the Financial Regulator and the Central Bank, with the report being especially damning of their role. In essence, they utterly failed in their duties and the State is paying a high price for their incompetence. Some of Dr. Nyberg's observations in this regard are worth noting:

The CB [Central Bank] was not powerless; it had the right to direct the activities of the FR [Financial Regulator] and it could advise the Government. There are, however, no records of such direction or advice or even efforts at such... The problems in Anglo and INBS in particular, were not hidden but were in plain sight of the FR and the CB... The DoF [Department of Finance] and the Minister for Finance were regularly provided with a Financial Stability Report, officially jointly written by the CB and the FR... The report occasionally made reference to the frothiness of the Irish property market but did not explicitly infer serious risks to the banks from this emerging bubble.

In other words, some warnings were given, but they were not forcefully expressed and not sustained. As far as the Central Bank and Financial Regulator were concerned, everything in the garden was rosy. The regulator came before the Oireachtas Joint Committee on Finance and the Public Service on several occasions and was clearly delusional about the risks before his very eyes. The Irish authorities, however, were not alone in being remiss in their duties. Dr. Nyberg notes: "Generally, international organisations (IMF, EU, and OECD) were, at most, modestly critical and often complimentary regarding Irish developments and institutions".

The appointments of Professor Patrick Honohan and Mr. Matthew Elderfield and the reform of the Central Bank-Financial Regulator structure by the previous Government were important steps forward. I welcome the new Government's indication that it is determined to build on these reforms to ensure we have a Central Bank and financial regulatory function that is fit for purpose.

Dr. Nyberg gives a balanced appraisal of the extensive bank guarantee introduced at the end of September 2008. In paragraph 5.3.11 he states: "The discussions for alternative measures before and on Sept 29, 2008, were conducted on the basis of very deficient information". That the Government of the day had to make a decision of this importance in the absence of full information from the relevant authorities is an absolute indictment of those authorities. Their lack of preparedness for the looming crisis was inexplicable. Paragraph 5.3.13 states: "Given the information provided, the Commission understands the Government's decision to provide a broad guarantee for the banks; if no major solvency problems were expected the Guarantee would not have to be called upon". It is clear from the report that the guarantee decision was made with inadequate information on the policy options. If the true picture was known about the banks, a different decision might well have been made involving perhaps a limited guarantee to secure short-term liquidity for the banks pending the adoption of a resolution regime. However, Dr. Nyberg acknowledges that even that approach was not without serious risk and difficulty. The banks were not honest with the Government about the extent of their problems and those responsible for advising the Government failed miserably in their role. As the report observes:

Crisis management in Ireland, therefore, was rendered less than fully effective by longstanding insufficient appreciation of bank exposures on the part of all the authorities. Decision makers and their various advisors, in autumn 2008, still mainly shared the common view that the banks were, and would remain, solvent.

It is clear that the economy was allowed to become grossly over-reliant on the property and construction sector. The Government of the day has to accept full responsibility for this and should have moved much earlier to reduce this reliance. Instead, for too long, petrol was thrown on the fire and the apparent boom. It all seemed fine for as long as property prices kept rising. In general, public spending was not adequately controlled, especially in the early years covered by the Nyberg report and pro-cyclical policies fuelled the boom.

Many private citizens contributed in no small way to the madness. I recall the scramble when new phases of residential developments were being released. Those in the right circle, with access to lending, were putting their names down for six or eight houses in the days leading up to the official release of a development phase. By the time the next phase was released, such investors could be up €20,000 or €30,000 per unit. It all seemed so easy. The young couples who queued to pay exorbitant prices were easy fodder and are the ones ultimately paying for the frenzy.

Part of the terms of reference for the investigation was to examine the role of external auditors. As someone who worked in audit and qualified as a chartered accountant with a big four firm, it saddens me that my profession failed to highlight adequately the serious risks building up in the banks. While auditors fulfilled their narrow function according to rules and regulations, Dr. Nyberg confirms they did not generally report excesses over prudential sector spending limits to the Financial Regulator. Even if they had, he notes, it appears unlikely that anything would have been done about it.

The only issue over which we now have control is that of ensuring lessons have been learned and that corrective steps are taken. In that regard I welcome the Minister, Deputy Noonan's, statement today. I look forward, together with my colleagues in Fianna Fáil, to working in a positive and constructive way with the new Government to address the issues raised in the report.

Deputy Bernard J. Durkan

I welcome the opportunity to contribute to the discussion on this important issue. It is interesting to hear the inputs from Members on different sides of the House. The Minister for Finance, Deputy Michael Noonan, set out a potted history of the crisis. In outlining the strategy adopted by the previous Government he observed:

This period, from 2003 to the beginning of 2009, was critical in terms of the crisis we face. From the start of 2003 it was patently obvious to any observer of what was happening in the banking and property sectors that the country had gone off the rails.

The former Minister for Finance, Deputy Brian Lenihan, is a decent guy. He called issues and sought advice, but it seems the advice he received was poor. He might not admit this in the House, but the reality is he received bad advice. A critical lesson we must learn is that when expert advice is sought, it should be questioned before it is relied upon. No expert should be able to walk away and say, "That was my best opinion at the time." Such expert opinions can be changed at a later time, as we all now know. Every Minister — any person in management in any organisation — should always remember, regardless of how expert an opinion may be, that advice should be questioned.

As well as an over-reliance on expert opinion, there was an over-reliance on audits which turned out to be inadequate in many instances. The odd aspect is that some years earlier, during the DIRT inquiry, it was shown that audits had failed, where and why they had failed. This was pointed out to the banking fraternity and financial services sector and anybody else who wanted to see it. I do not accept there was no failure in terms of compliance with the Companies Act; on the contrary, there was clearly a serious failure in terms of an avoidance of the principles of that legislation. There was malfeasance and misfeasance. People must have known what would happen. There was clearly an abdication of responsibility, about which nobody was concerned.

There is no use in saying what was happening was not known. All of the principles of lending and borrowing established internationally in the last 100 years were turned on their head. We all know that is the case, including the former Minister, Deputy Brian Lenihan. Why was it allowed to happen? Of course, there was greed. However, another factor was the historically low interest rates which were of great benefit in terms of economic expansion but in respect of which control and oversight were required to defend against inflation taking off in all directions. The European Central Bank seeks to control inflation through interest rates manipulation. That is not the right approach, given the regional differences across the European Union. We must have a methodology for controlling inflation which does not apply the same measures across all borders. I will never understand the reason credit controls were not introduced at a time when property prices had inflated by 300% within a three or four-year period. It is unthinkable this could have happened. What really happened is that where the banking system used to control property values and property was the collateral, the positions were switched, whereby the banking system became the collateral and the property became the bank. Members now know why and how it happened, as well as the sequence in which it happened and the issue now is how do we get out of it. While one could continue in this vein, I do not wish to hold up the debate, but suffice it to state——

Deputy Brian Lenihan

The Deputy should note the report does not suggest I received expert advice. It suggests I received no expert advice at all.

Deputy Bernard J. Durkan

I assure the Deputy that were his time to come again, he would ask many more questions.

There also was a consensus of business interests that had converged and polluted one another because they were all going in the same direction. The reason for this is Irish company law which obviously differs from that which obtains in other countries. If something is done to jeopardise a company in the United States, the principals end up in jail. They go straight in because if they jeopardise the company, they jeopardise the interests of the shareholders as a result and anyone who is culpable in a situation where a company or the service provided by it is put at risk is in trouble. In Ireland, as Members have heard again in recent days, the shareholders, the non-executive directors and the management were all thinking in the same way and going in the same direction. They were all thinking this was wonderful and that if one deposited one's money in the bank, one could only get a return of 2% but if one was to invest it in property, one would get a return of 40% or perhaps 50% over a three or four-year period. That is both unsustainable and absolutely crazy and the sad part is that all of these weaknesses were identified during the DIRT inquiry. I refer to weaknesses such as bad governance, a failure to recognise when things were going wrong, malfeasance, fellows who simply would not stand up and accept responsibility, and misfeasance, where they simply walked away and took no responsibility.

I wish to discuss two other issues, the first of which is the problem Ireland now faces in mending its image across Europe. I strongly urge that this be perceived by the Government as a priority. Most parliaments, as opposed to governments, throughout Europe do not regard us highly. They consider us to be a bunch of chancers and grabbers who are not honourable and who do not tell the truth. Consequently, we must address these issues. This will be a difficult job, but it must be done as a matter of priority. Moreover, while the Government will do this at governmental level, it should also be done at parliamentary level where nothing is happening. For example, I refer to a Schuman report issued last November that was an appallingly scurrilous report on Ireland and the entire scenario under discussion. It was gratuitously insulting and the issue must be addressed.

The final point I wish to make pertains to something I came across recently. Our costs, salaries and wages are too high. As the latter are among the highest in Europe, everyone criticises us. I refer to the recent OECD report. Funnily enough, very little time, attention or focus has been placed on property prices in parallel with salaries and wages. The simple reason salaries and wages are higher in Ireland than in most other European countries is people here could not afford to buy or rent a house in the market that prevailed between 2003 and 2009. This is the appalling fact. Consequently, when our European colleagues complain and criticise, with justification, that we are the highest paid in the eurozone, they must also recognise that through whatever system was in operation, we reached a point where we also had the highest property prices which reached an appallingly high level.

I will conclude by noting that two years ago I saw a property advertised in the south of France. It was a former Cistercian monastery on 25 ha with 15 bedrooms, Gothic architecture. It was a period residence with everything one could ask for. Its asking price in Irish newspapers was €1.1 million and the theory was that were a similar property offered for sale in Ireland, one would be talking about a price of at least €10 million for such a trophy. That comparison spells out the mistakes we have made and the stupidity of what went on. Moreover, there is a case to be answered and I do not believe people in Ireland can walk away with impunity. Instead, charges could be levelled. I believe there were cases in which there was misgovernance and malfeasance of a serious nature that those responsible will be held accountable in the courts at some stage.

Deputy Pádraig Mac Lochlainn

The Nyberg report published yesterday places the blame for Ireland's financial crisis squarely in the hands of Ireland's troika of incompetence, that is, the Central Bank, the Financial Regulator and the Department of Finance. Regulation was weak, banks were greedy, profit was king, the media were complicit and so on. While the Nyberg report places blame on the Irish players for the economic catastrophe, one glaring omission as a result of the limited terms of reference is an acknowledgement of the central role played by the IMF, the ECB and some of our stronger European partners in getting us into this sorry state. The ECB and French and German banks, in particular, were only too willing to funnel endless streams of cheap money into the Irish banks which are now insolvent. Is it not ironic that these are the same countries that seek the amendment of our corporation tax rates? The funds of those European bondholders are now guaranteed by Irish taxpayers who must pay for the sins, both of our reckless bankers and of the ECB and European bankers.

I refer to an interesting statistic, albeit dreadful for Ireland, pertaining to German and French banks. Although such banks hold €10 billion of Ireland's sovereign debt, they hold €74.5 billion of Irish bank debt. If one joins up the dots, this tells one that those vested interests, namely, the German and French states in defence of their banks, are determined to bail out the banks to save their own bacon. Consequently, this is not a bailout for the Irish people. It is as much a bailout for the European banking system as it is for us and for German and French banks, in particular. This is a European problem and reflects a structural imbalance between the core and the periphery. A total of 1.8 million Irish taxpayers simply cannot afford to pay the creditors of private European banks which lent recklessly to Irish banks, thereby accumulating more than €150 billion in debt.

An important point to note is that the Government has done nothing to stop the false narrative that is developing and spreading like wildfire across Europe to the effect that Ireland alone is responsible for its economic breakdown and crisis. It was interesting to observe the recent Finnish general election in which a party made gains based on a belief the Finnish people were contributing towards bailouts that only benefited other countries. This is part of the myth and the Government must make it clear this is a bigger issue which pertains as much to a European as to an Irish failure of the banking systems.

I now turn to the other troika of incompetence, namely, the European Central Bank, the IMF and some of our stronger European partners. The ECB, the European Union and international money markets must be exposed for their share in creating the crisis. The report examines the Irish Financial Regulator and Irish Central Bank but what about the European regulators and the European Central Bank? One of Dr. Nyberg's key conclusions or reasons for the bubble is the flood of cheap funding from the wholesale money markets given carte blanche by the European Central Bank and other institutions such as the IMF. Elite policy makers across the European Union are responsible for the eurozone debt crisis and it is long past time for the Government to acquire some backbone and spell this out to its European counterparts. The IMF and the ECB are demanding that Irish citizens bear the burden of the mistakes made by international financiers. The policy of socialising the losses of European banks remains, while the gains can continue to be privatised by many of these same banks, investors and bondholders across Europe. The European political project has failed to acknowledge any hand, act or part in the Irish debacle. Those involved prefer to wash their hands, turn their backs and walk away while leaving the Irish taxpayer to be crucified.

Let us be clear about what was being done to people across the State. Pages 5 and 6 of the Regling and Watson report on macroeconomic developments in the State which was published last June stated when referring to the IMF's analysis of the Irish financial sector and system: "Equally, the IMF was not strongly or consistently critical of the underlying dynamics of fiscal policy". It also stated: "The IMF's major Financial System Stability Assessment of 2006 did not sound the alarm, and there is no evidence that its private warnings did so either". The said IMF 2006 assessment which Messrs Regling and Watson are condemning claimed that the Irish financial sector had continued to perform well since its participation in the financial sector assessment programme, FSAP, in 2000 and that financial soundness and market indicators were generally strong. This was the international culture at the time. It even went on to state the outlook for the financial system was positive and that good progress had been achieved in strengthening the regulatory and supervisory framework in line with the recommendations of the 2000 FSAP. As the Nyberg report spells out, "International organisations (IMF, EU, and OECD) were, at most, modestly critical and often complimentary regarding Irish developments and institutions. This gave the authorities and the banks additional reason to assume that all really was well". Clearly, the role of the International Monetary Fund and particularly the ECB needs further examination. While the Government, the Central Bank and the Financial Regulator were blind and indifferent to what was going on, the ECB and the IMF which are supposed to monitor European and world economies and ensure financial stability did not see any cause for alarm.

I am sure that, like every Deputy, I was researching reports and reading some stories on-line last night. I read something written by Mr. Nick Leeson, the man who brought down Barings Bank many years ago, on TheJournal.ie. He wrote about his experiences and how everything was fine and he was ignored when he was delivering profits until he eventually brought down the bank. He commented on what lessons had since been learned in the international financial sector. These questions must be asked. Likewise, is the IMF as reliable and credible as we are led to believe?

What changes are under way within both organisations to prevent this problem recurring? Can their reports and analyses be taken seriously? If the euro collapses, as some commentators claim is now possible — I hope they are wrong — what credence does the ECB have? How is it any different from the regulators, central banks and governments which failed to predict and prevent this crisis?

During Private Members' business last night on the motion on oil and gas fiscal licensing terms the Minister for Communications, Energy and Natural Resources, Deputy Pat Rabbitte, stated:

The 2007 tax terms do not apply to the Corrib gas field, as they do not apply to exploration licences granted prior to 2007. To do so would have been to introduce what would, in effect, have been a retrospective form of taxation and such an action would not have been in Ireland's interest.

I hope these comments will not be characteristic of the Government's approach to what clearly are injustices. If something is wrong, it should be righted no matter what it is. I wonder what the Minister meant by "would not have been in Ireland's interest."

Significant responsibility and blame lie with those controlling the purse strings and delivering financial advice at EU and IMF level, those who promoted the very deregulation and liberalisation of the domestic and international financial regimes that created the crash and those politicians and figures who introduced waves of tax incentives for people to invest in financial speculation rather than the real economy.

I put it to the Government that all three reports to date — the Regling and Watson, Honohan and Nyberg reports — have referred to the international dimension of negligence. On that point, will the Tánaiste who is undertaking a diplomatic initiative extend the remit of his European diplomatic mission with a new objective, namely, to communicate this crucial point to the Independent Evaluation Office, established in 2001 as an internal watchdog for the IMF, and also appeal to the 186 other member governments of the IMF to review its complete failure in operating successfully in the case of the State? The Government's members are now Ministers. They are in charge of the country's future. They should give young people a reason to stay and fight for their futures.

Acting Chairman (Deputy Joanna Tuffy)

I understand Deputy Olivia Mitchell wishes to share her time.

Deputy Olivia Mitchell

With Deputy Billy Timmins.

Acting Chairman (Deputy Joanna Tuffy)

Is that agreed? Agreed.

Deputy Olivia Mitchell

I thank the Chair for giving me an opportunity to speak in this debate. When the report was published, there was a great deal of disappointment that it did not name individuals and that no silver bullet of clear blame was apportioned, given that blame was so widely spread. In defence of Dr. Nyberg, the legislation under which the commission operated provided that, if there was any question of prejudice, the Minister of the day would need to apply to the courts for permission to publish. If there is anything people want, it is for the guilty to pay, not to be paid. That the public was appalled by events yesterday was understandable. People would never have forgiven us had future court cases been prejudiced.

The previous Government has taken some comfort from the fact that blame was spread widely, but it should not. It was in charge, which is what being in government means. The responsibility for governance and good regulation is a political one, particularly in the case of bank excesses. We are not referring to a single incident but to sustained overspending and credit provision in a particular sector. This continued for many years, while dissenting voices — irrespective of what people say, there were dissenting voices, not least from the then Opposition benches — were subdued in favour of the imperative to accrue the revenue being yielded by the property bubble.

Various actors were undoubtedly complicit in the banking disaster, but I do not want this fact to exonerate the former Government or implicate the entire population of Ireland. To refer to herd mentalities, "group think" and a national speculative mania is to suggest we were all involved in the frenzy, but that is not the case. We are not all guilty. For example, young people who paid well over the odds for houses at the time are not guilty. They were participants, but they were also victims. They had no choice but to do what every generation had done, namely, go out and try to provide for their families. They have a burden around their necks, whereas those who caused the crisis have long since sailed off into the sunset to play golf or whatever.

Two myths that have been dispelled are that we were all somehow part of a problem started by Lehman Brothers and that ours was just one of the countries affected, including Greece and Portugal. There was a worldwide banking crisis, but other countries dealt with theirs. Britain bailed out its banks and got over the crisis. Its banks are profitable and contributing to its Exchequer again. Greece, Portugal and, more than likely, Spain have significant problems, but they are fiscal deficit issues. They do not have a banking problem. Unfortunately, Ireland has the largest banking problem in the developed world and we have a fiscal problem to boot.

The report states that, on the night the fateful guarantee was given in September 2008, information was deficient and, had information been presented, other decisions might have been taken. For example, Anglo Irish Bank might have been taken into national administration and gradually wound down. Unfortunately, this did not occur. I question the extent to which there was a lack of information. I accept that the Government might not have had all of the information available, but I cannot believe the banks did not have it. It is not credible that those whose job it was to know what was going on and who were involved daily in banking business believed Irish property was the most valuable on the planet or that every bank lending large amounts of money into a single sector was sustainable. The banks knew it was not just a liquidity problem but a major solvency problem. That summer money was pouring out of the banks. The deposits pouring out were not just domestic, they were from international investors who were reducing their deposits in Irish banks. The professionals must have known this, as the dogs in the street knew it that summer. Those who should have been advising the Government and were well paid to do so stayed quiet, perhaps in order to hide their own failure to alert the Government at an earlier stage. Perhaps they hoped for the best and thought it was just a liquidity problem. We will live with the consequences of these decisions and the piecemeal choices which followed that always seemed to be insufficient.

It is important for us to learn from the mistakes of the time. I, therefore, welcome the announcements made by the Minister that there will be a change of regime and that there will be regulation in the future. A completely new regime will be in place from now on.

Deputy Billy Timmins

The initial reaction to the Nyberg report has been one of disappointment. Irish people like facts and names; they like to know what actually happened. The report is a generalisation; we already knew most of the information provided. We wanted to know what advice was given to both the Taoiseach and the Minister for Finance prior to the giving of the bank guarantee and who gave the advice. The advice given was known to be incomplete and incorrect. The former Minister is in the Chamber but is probably not in a position to enlighten the House. I hope that at a later date an Oireachtas committee will investigate the matter as I strongly believe the information given was inaccurate and that somewhere along the line this inaccurate information was knowingly fed into the system and resulted in a catastrophic decision being made by the previous Government, supported by others in the House.

The banking difficulties which led to the IMF and EU deal have created a certain vulnerability in Ireland, which should not be the case. We have seen our consolidated tax base coming under attack and this is as important as our corporation tax rate. We must maintain these rates as fiscal policy is our responsibility. I attended a meeting with President Sarkozy at the French Embassy and if my memory serves me, he clearly stated tax matters were for the Irish Government alone to decide. I took notes at the time and hope to dig them out shortly to confirm this, but that is my clear memory.

We should not allow ourselves to be bullied in Europe. Some people have adopted the deny, attack and reverse victim and offender, DARVO,principle, most notably Lorenzo Bini Smaghi, a member of the European Central Bank since 2005. I do not know why he made his recent comments because if he had carried out a close examination of the banks in Germany, Italy and France, he would have found many questions to be answered there also. Deputy Bernard Durkan mentioned the rebuilding of bridges in Europe, but we have nothing of which to be ashamed. We have suffered from greed, but that is as old as time itself; it is not a quality unique to the Celts. Many nations have carried out grave atrocities and made mistakes through generations. We should proceed with a positive and progressive approach.

Until there is an alignment of interests where banks and bankers are congruent with the good of the economy and its shareholders, there will be a problem. The report outlines lessons to be learned and one of the most worrying aspects is that measures we have taken to date may not prevent a recurrence of what happened in the past. There are many policy issues referred to, but it behoves us to decipher what is contained in the report and implement measures to ensure, in so far as we can, that we will not have a repeat of the current crisis.

Acting Chairman (Deputy Joanna Tuffy)

Deputies Catherine Murphy and Seamus Healy have until 6.50 p.m. to speak, at which time the Minister will respond.

Deputy Catherine Murphy

I will be sharing time with Deputy Seamus Healy.

The report states the commission's remit was to identify the causes of the crisis and related failures rather than to assign individual blame or responsibility. I cannot see what additional value the report brings over and above the reports already done. It is a very expensive report and it is unfortunate that it does not attach blame. If we are to change the culture that prevailed, responsibility must be assigned to individuals rather than the institutions which were managed. That responsibility must be taken on a personal level.

We know the consequences, with 1,000 people leaving every week to go into exile, rather than emigrating, and 440,000 people on the dole. At the same time we can see people walking away with golden handshakes, which is really sickening.

According to the report, the problems of Anglo Irish Bank were in plain sight as the funding strategy was concentrated on the speculative part of the market. The report investigates the banking system, but the system of development we embraced led to speculative development. I know that at local government level several of us fought for up to two decades to apply sense to the rezoning of land, but we were called nuisances and the anti-development crowd. We were accused of driving up house prices because we were trying to limit the availability of land. There is a relationship between speculation and land rezoning and perhaps we should revisit the Kenny report. In doing so we might avoid future problems.

Deputy Seamus Healy

The clear impression given by the Nyberg report and the media in general is that we all lost the run of ourselves and that we were all in it together, but nothing could be further from the truth. We did not all lose the run of ourselves and we were not all in it together. Unfortunately, the report is a whitewash and a cover-up for the Irish establishment which supported the banking process that brought about the current crisis and recession. The report is a cover-up, but we must name and shame those involved. Generally, they include the Irish super-rich who still have €250 billion worth of assets, Irish and European bankers, developers, politicians, the Government of the day, the Department of Finance, the former Minister and the former Taoiseach, as well as the board of the Central Bank and the Economic and Social Research Institute. They are responsible for our current position, not the people in my constituency, in towns such as Carrick-on-Suir and Tipperary where there was no Celtic tiger. They suffered three, four or five times the average level of unemployment during that period. They live in RAPID areas and make up some of the 50,000 families on local authority housing lists and the thousands of first-time home buyers who have been forced into a position of negative equity, with large mortgages that they are unable to meet.

All of the political parties bought into the process, as we will see if we examine each of the manifestos for the 2007 general election. Worst of all, no political party — either in the previous or current Government — is prepared to deal with those singularly involved in creating the crisis, the people who are still very rich and who still have significant amounts of money. None of the main political parties is prepared to tax the rich or make them pay an assets tax in order to obtain a fair share for society. There is an urgent need to do this.

Deputy Arthur Spring

As the debate is of such importance, I ask the Ceann Comhairle to extend the time allowed for discussion in order that we can hear statements from Members with an interest in the matter.

Acting Chairman (Deputy Joanna Tuffy)

The Order of Business was decided this morning.

Deputy Arthur Spring

I request that the debate be extended. We were told there would be speaking time.

Acting Chairman (Deputy Joanna Tuffy)

The Deputy can make that case in another forum.

Minister without Portfolio (Deputy Brendan Howlin)

I thank all Deputies for their contributions which have been useful. I understand the frustration of some. I accept Deputy Arthur Spring's point that we need detailed consideration of this matter and I hope that can happen within the committee system of the House. I hope the committees, once they are up and running, will have new powers to carry out the in-depth analysis for which Deputies were crying out during the course of the debate.

The inquiry was started by the former Minister for Finance, Deputy Brian Lenihan, who is present in the Chamber and has led to the publication of three reports to date: the macro-level investigation into the causes of the crisis carried out by Messrs Regling and Watson; the investigation into the regulatory and financial and stability policy of the Central Bank and Financial Services Authority of Ireland between 2003 and 2008 carried out by the new Governor of the Central Bank, Professor Patrick Honohan; and the report of the commission of investigation into the banking sector in Ireland carried out by Dr. Peter Nyberg.

Deputies have asked why the commission did not name individuals. While this is a matter in the first instance for Dr. Nyberg, the commission states in its report that it could not assess the actions or inactions of single individuals in organisations and did not think it was appropriate or fair to do so. However, there is no doubt that the Members of this House can and should do this. The responsibility falls on us to do so in the fullness of time. I invite Deputies not to cry at the darkness but to ensure, when the committee system is up and running, that we will have the accountability the people demand.

Deputy Sean Fleming referred to the need for European supervision of the banking system. The new European bodies — the European Systemic Risk Board, ESRB, and three new European supervisory authorities — are important for the future monitoring of financial stability and regulation of the European banking sector. The ESRB monitors and assesses risks to the stability of the financial system as a whole, providing early warning of systemic risks that may be building up and, where necessary, making recommendations for action to deal with these risks. Three new European supervisory authorities have been established for the banking, insurance and pensions, and securities sectors. These are all important in ensuring effective oversight. People will say this amounts to locking the stable door after the horse has bolted, but we do need to learn from the disastrous mistakes that have had and will have consequences for the people of this country and to ensure these mistakes are never repeated.

I would like to touch on the decision made to introduce the guarantee — probably the most disastrous decision made by any Government since the foundation of the State.

Deputy Brian Lenihan

Nonsense.

Deputy Brendan Howlin

That is my view and I am entitled to it. Its introduction, the report states, was based on "very deficient information" and a lack of suspicion. The commission finds that crisis management in Ireland was rendered less than fully effective by insufficient appreciation of bank exposures on the part of all the relevant authorities and that decision-makers and their advisers during that fateful time in the autumn of 2008 maintained the view that the only relevant problem was the threat to the liquidity position of the banks. No major solvency issues were expected to arise and the guarantee would not be called upon — that was their misapprehension. The possibility that banks might experience disastrous losses in asset values did not appear even to have been considered. If accurate information on the banks' exposures had been available, it seems to the commission that a more limited guarantee, combined with a State takeover of at least one bank, might have been seriously contemplated. We need to ensure that in the future the authorities will have access to up-to-date and comprehensive information and that it will be shared appropriately among the relevant authorities in order that they will not end up, as the previous Government clearly did, flying blind.

I know the former Minister opposite has views about this. The decision was catastrophic for the State.

Deputy Brian Lenihan

The current Government has given a bigger guarantee with full information.

Deputy Brendan Howlin

The Deputy can shout us down if he likes.

Deputy Brian Lenihan

I am not shouting the Minister down.

Deputy Brendan Howlin

The decision made was catastrophic. We need to get behind the information the Government had available to it on that fateful night because it is the view of the commission in the report before the House that the decision was taken on the basis of inadequate information. The commission's report notes that the authorities had developed, in line with EU requirements, a framework for information exchange, crisis management and contingency planning in a domestic standing group on financial stability. This provided a structure for ongoing co-operation between the Department, the Central Bank, the Financial Regulator and the NTMA. In the light of the commission's findings on the evident information deficit, we will need to look closely at how the arrangements for information gathering and exchange can be improved. The structure of the domestic regulatory and banking system has changed significantly in the years since the crisis hit. The Government will be presenting legislation later this year to further enhance our regulatory and supervisory regime.

The issue of payments to senior bankers, particularly the payment to Mr. Colm Doherty of AIB, the details of which were published yesterday, was mentioned. As the Minister for Finance, Deputy Michael Noonan, stated, we have many legacy issues to deal with. There was nothing, unfortunately, that the current Government could do about Mr. Doherty's payment because when he stood down in November, he was given the remuneration to which he was legally entitled at the time. All of this occurred before we arrived in office. There may be other senior bankers who have legal entitlements to similar deals. The Department of Finance is examining the situation. In future we will be carefully examining any new remuneration arrangements, particularly bonuses. There are similar developments in Europe, with European directives on the remuneration of senior bankers, and the bonus culture is being addressed head on. We will be moving to establish a new regime to replace the old one. However, we live in a very litigious state and the Minister is conscious of the fact there are still people who have legal entitlements that may be difficult to disentangle. We will do our best to address the issue.

Deputy Shane Ross raised concerns about public interest directors and boards in the covered institutions. As a result of recent events, the Government now has, or will have, a substantial stake or a full controlling interest in six credit institutions. We are determined that proper governance arrangements will apply and that the board of each institution will continue to be responsible for management and policy within the institutions.

Deputies Brian Lenihan and Mary Lou McDonald raised the issue of auditors. As the Minister stated, the report's conclusions with regard to auditors are in general accord with the widespread view that auditors may be able to take on an enhanced role in co-operation with supervisory authorities, while maintaining their specific statutory functions. The Central Bank is already engaging with the audit profession to explore how it can assist the bank in exercising its supervisory role. The Minister will be keen to see progress and developments in this regard.

Deputies Brian Lenihan, Pearse Doherty and Shane Ross raised questions about the role of the Department of Finance. As the Minister stated, the report contains important messages and conclusions for the Department. While it deals principally with banking matters, some of the messages will also be examined by me in my role as Minister for Public Expenditure and Reform. The report, in conjunction with the Wright report, will inform the future direction of the Department. Deputies will recall that the recommendations set out in the Wright report cover a wide range of issues regarding organisational structures, skills within the Department, staffing and procedures. The exact reconfiguration of the banking division within the Department will be developed in the coming weeks.

As I said, it is important that the Oireachtas has a role in considering the report. I am conscious that some Deputies who wanted to speak did not have an opportunity to do so. As Deputies will be aware, the Oireachtas has been involved in the stages of the process to date and there must be more to come. On behalf of the Government, I am anxious to ensure that today will not be the end of this. We must learn the lessons of the report and ensure proper accountability. We must use the institutions available to us and strengthen them, as the Government announced yesterday, by asking the people for greater authority for the committees of this House in holding public institutions and individuals to account.

The report provides an expert, authoritative and structured examination of the crisis. It does not lay the finger of blame in the way some would have liked but identifies the causes of the crisis in the banking sector and the wider financial impact it has had on the economy. It enables us to understand the origins of the crisis and helps us to learn lessons which will inform our future management of the banking sector. I hope we have embarked on a process that will ensure the catastrophic collapse in our oversight of the banking sector will never be repeated.

Dáil Éireann díospóireacht - Wednesday, 20 Apr 2011

Commission of Inquiry into Banking Sector: Statements

Dáil Éireann díospóireacht -
Wednesday, 20 Apr 2011