Report on banks hits out at 'herd instinct' to follow Anglo

“GROUP THINK” and a “herd instinct” which forced the banks to chase profits made by Anglo Irish Bank were among the causes of the banking crisis, according to draft findings of the Nyberg commission of investigation.

The commission has, however, concluded it is difficult to assign blame more specifically for the crisis as many parties share some degree of responsibility.

Led by former Finnish civil servant Peter Nyberg, the commission has found there was a general view that property prices would continue rising and that when the property market turned, there would be a “soft landing”.

Few escape criticism in Nyberg’s draft conclusions. The banks, the Government, the Financial Regulator and the media are mentioned as being responsible for the crisis.

The commission concluded there was a lack of critical debate across Irish society about the scale and sustainability of the economic growth and the property boom.

There was a general view that property values would not fall, which contributed to the growth in property lending and excessive risks taken by the banks, it found.

The commission also blames the media for supporting the profit and share growth of the banks during the boom while being dismissive of warnings that suggested the growth was not sustainable.

The commission, which is due to forward its final report to the Minister for Finance later this month, has circulated draft findings to parties interviewed during the six-month investigation.

Under the commission’s statutory rules, individuals interviewed in the inquiry must be given an opportunity to respond to its findings before the submission of the final report to the Minister.

The commission will not name individuals in the final report.

Rapid-growth policies followed by the banks, particularly by Anglo Irish Bank and Irish Nationwide Building Society where lending controls were over-ridden, were identified by Nyberg as contributing factors leading to the crisis.

The rate of growth at the banks was not supported by adequate internal controls, the commission has concluded in draft findings.

Nyberg has found that while Anglo had strong internal risk controls, these were ignored as the bank increased its loan book.

The bank’s non-executive directors have been criticised for relying too heavily on the views of management and for not having sufficient banking experience to question the policies at the bank.

Irish Nationwide has also been criticised for not having sufficient checks and balances in place.

Nyberg was asked by the Government last year to investigate lending practices at the banks from January 1st, 2003, until January 15th, 2009, the day of the nationalisation of Anglo.

The investigation examined the business models followed by Anglo and Irish Nationwide in particular to assess why the financial institutions incurred heavier losses.

The commission has avoided areas still under investigation at Anglo – the €7 billion deposits with Irish Life and Permanent which flattered Anglo’s book at its 2008 year end, the concealment of Seán FitzPatrick’s loans from shareholders and the “golden circle” transaction in which Anglo lent to 10 customers to support its share price though a private sale of 10 per cent owned by Seán Quinn.

Nyberg’s work follows two reports into the causes of the crisis last year by Central Bank governor Patrick Honohan and by international banking experts Klaus Regling and Max Watson.