Five things we’ve learned from the report
It’s been more than 18 months in the oven but what’s new
Idea for guarantee hatched months earlier
Contrary to the notion that the plan for a blanket guarantee of the banking system was cobbled together at high speed by panic stricken authorities in late September 2008, the committee’s report indicates the idea was floated as part of a range of options months earlier. The option of introducing a general guarantee was first formally noted in January 2008, again in February 2008 and again in June 2008.
Burning bondholders shot down by ECB
The National Treasury Management Agency (NTMA) drew up a plan to claw back €9.1 billion for the Irish State by partially burning bondholders across the six guaranteed banks. The plan would have imposed haircuts, ranging from 45 per cent in Bank of Ireland to 63 per cent in Anglo/INBS. The idea was shot down by the ECB, which threatened to cut off emergency liquidity if the Government imposed losses on bondholders.
‘Solvent’ removed from government statement
The Fianna Fail-led government that signed off on the infamous bank guarantee was assured by the Central Bank and the financial regulator that all six institutions covered by the guarantee were solvent on September 29th, 2008, the night before the guarantee was agreed. However, the word “solvent” as it pertained to the underlying health of the six covered banks was mysteriously removed from the final official government statement announcing the blanket guarantee.
Anglo could have traded without guarantee
The widely held belief that Anglo would have been unable to open its doors on Tuesday, September 30th without the guarantee, potentially causing a tidal wave across the financial system, was debunked. When former Central Bank governor John Hurley was asked if Anglo would default without a guarantee being agreed at the previous night’s meeting, he replied: “It wouldn’t have defaulted because we had made arrangements for emergency liquidity assistance…. We would not have allowed such a situation to happen….”
‘Soft landing’ theory had no basis in reality
The “soft landing” theory, Ireland’s version “this time it will be different”, suggested the most likely outcome to the property boom would be a gradual return to normal via a moderate bout of deflation but nothing like the collapse that ensued. The report said the theory, which was trumpeted by then government, Central Bank and the Department of Finance, was delivered without proper analysis or research, the inquiry’s report concludes. It also notes that “the failure to take action to slow house price and credit growth must be attributed, at least in part, to this shortcoming”.