You can’t lock up an entire bank, can you?
As a country heavily dependent on banking, Switzerland should have had a bad financial crisis. And in various respects, including the necessity for government intervention in the banking sector, it did. Nevertheless, its 2009 growth rate of -1.5 percent would have been gladly taken in Ireland. Anyway, since Switzerland is also a country where there is — unlike Ireland — some demand for accountability, the post-crisis directors of banking giant UBS commissioned a report into the failures of the former directors and managers in the run-up 2007, failures that required an infusion of government cash to prevent the bank going bust.
As part of the process, UBS had two independent experts look at the evidence gathered for their report as a check on the conclusions. The main report is an interesting read, but somewhat technical and gets into different issues than the Irish banking crisis, since UBS went astray on its overseas investment banking and wealth/tax management businesses, not its core lending operations. But here’s a key line from the assessment of independent expert Dr. Tobias Straumann, Lecturer, University of Zurich:
The problem at UBS was not that the Bank’s leadership simply ran rampant without any restraint. In fact, the contrary was the case: top management was too complacent, wrongly believing that everything was under control, given that the numerous risk reports, internal audits and external reviews almost always ended in a positive conclusion. The bank did not lack risk consciousness; it lacked healthy mistrust, independent judgement and strength of leadership.
As a result, the Bank’s new management, with the support of the independent experts, believe that legal action against the former management and directors is a waste of time. The systems gave cover for the decisions, and the systems were part of the bank as it then was.
There are unpalatable lessons for Ireland in this. First and foremost, the relatively few people holding their breath to see a Bernie O’Madoff behind bars in the ‘Joy (or Thornton Hall) might want to exhale. Even without invoking the inevitable green jersey defence, any individual charged with anything is going to have the “I was only obeying the system” excuse.
Second, once you arrive at the conclusion of deeply flawed systems, the Irish approach since 2008 looks even more complacent. The two Brians exposed us to the entire balance sheet of the domestic banks in September 2008. With that exposure, that was also the day that the government should have been in the banks looking at what loans we were exposed to and what risk management systems were in place to protect our interests. Yet since then, we’ve been told 4 times that the detailed examination was taking place (with the guarantee itself, the nationalization of Anglo, NAMA, and the recent capital assessment), and each time the news has been worse. But an early examination of the systems in all their rotten glory instead of time-consuming trawls through the loan book might have provided a much earlier red flag on the bottomless pit — with corresponding reluctance to say so quickly that no lender to the bottomless pit loses a cent.
So yes, the Irish situation was especially messy. But we need to ask how other countries that had big exposures have dealt with both the diagnosis and the cure compared to Ireland. That’s what “benchmarking” is supposed to mean.