Iceland has lessons to teach on bank crisis, report finds

IRELAND COULD learn valuable lessons from Iceland’s response to its banking collapse, according to a report published yesterday by the Dáil Committee of Public Accounts (PAC).

Its chairman Fine Gael TD Bernard Allen and Fine Gael’s Jim O’Keeffe travelled to Iceland last month as part of the committee’s investigation into the collapse of the Irish banking system.

Iceland set up a special commission to inquire into the 2008 collapse of its three main banks. It produced a nine-volume report running to 2,000 pages.

The commission found key individuals at government level and in the financial regulation sector were grossly negligent in failing to prevent the bank collapse.

It also found government authorities failed to react when it became clear that Iceland’s banking system had become too big for the size of the economy. It found the financial regulator was under-resourced and weak regulation allowed banks to invest funds in their own shares.

Mr Allen said there were some striking similarities between the failure of the two banking regimes.

“Crucially, however, they are further down the road in their response than we are in Ireland.”

Earlier this month, Minister for Finance Brian Lenihan announced former senior Finnish government official Peter Nyberg would lead the Irish commission of inquiry.

The PAC report said it had found in Iceland “a great resolve” to meet the challenges thrown up by the crisis head-on.

It said the extent to which the commission probed the collapse and apportioned blame was unexpected but was “broadly welcomed” by all in Iceland.

“The delegation noted the resolve that existed to address the issues that caused the collapse, including personal culpability on the part of individuals in the establishment, and to put measures in place to ensure that the affairs of the State will not be put at risk again,” the report stated.

The report noted the terms of reference of the Icelandic commission included an investigation of the role the Government might have played in contributing to the collapse.

Speaking yesterday, Mr Allen said the Irish commission of inquiry should consider the template used in Iceland. “Our commission of investigation does not seem to include management by Government Ministers and State officials into the collapse in its terms of reference. Based on what we saw in Iceland this is something which may be worth exploring.”

Mr Allen said Iceland now appeared to be getting its public finances in order and was getting back on track. “So while there are many harsh lessons to be taken away, Iceland also shows us that with the proper corrective action recovery can happen.”

Asked about the cost of the trip, an Oireachtas spokesman said the precise figures were not available yesterday but it was a brief study trip and the costs were not exorbitant.

The PAC report, including a summary of the conclusions of the Icelandic report, is available on oireachtas.ie; see under Dáil committees