What do we know from Nyberg that we didn’t know before?
With the trilogy of Lenihan-era reports into Ireland’s financial collapse now completed (Regling-Watson, Honohan, and now Nyberg), there is now a lot of good information from which to draw. But if you were hoping that completion of the trilogy meant something on the order of Return of the Jedi in terms of closure, you’d be mistaken. To the extent that Nyberg apportions responsibility at all, it’s to institutions and not to individuals, and a collective irrationality straddling government, banks, and homebuyers plays a big role in his story. Nevertheless, I came away from the report with a better sense of particular issues that hadn’t come across before.
1. The role of preserving “independence” in the herd-lending mentality of banks. Bank of Ireland, AIB, IL&P and EBS didn’t just chase Anglo and INBS because of profits and targets, they chased them because they thought if they didn’t get bigger themselves (meaning market valuation), it would be too easy for Anglo or a foreign bank to take them over. And thus one of the great ironies of Ireland’s financial crisis — chief executives and boards wanting to keep the prerogatives of being a stand-alone bank put the banks in the hands of the state. One outstanding question: did the Irish bank mentality of “independence” affect the thinking of the government in 2008 — the extreme reluctance to get directly involved in managing the bank affairs, preferring instead the stroke of the guarantee?
2. INBS was a worse financial institution than Anglo. The shortfalls in how it was run documented in Nyberg are damning. It was missing even the basic committees that a bank is supposed to have. Furthermore, the greed driven by its prospective demutualisation was a disastrous force. The only reason it’s not an even bigger mess is because it didn’t manage to get bigger than it was. But yes Ireland, things could be worse. We could have an INBS with an Anglo-sized balance sheet.
3. A rampant press release culture is an important cameo player in Nyberg. Brian Cowen, as finance minister, did get briefed on the Central Bank’s Financial Stability Reports. But the briefing was simply speaking points for the reports — not an analysis of its contents. The eye was always on the write-up for the hacks, not the key messages for decision-makers.
4. The Sean Quinn Anglo crisis had a big influence on government thinking. Far from signalling that something was seriously wrong at Anglo, it created a siege mentality in Anglo and the government … they spent the summer of 2008 thinking “and we would have gotten away with it too if it hadn’t been for those meddling speculators”. It also just pulled staffing away from preparing for the actual crisis to dealing with the Quinn situation.
5. The Autumn 2008 Price Waterhouse Coopers was mis-read. Yes, there was a section saying that banks had enough capital for a stress test. The Central Bank and Financial Regulator latched onto that and briefed the minister accordingly (see item 3). But the actual body of the report contained many red flags on how dodgy the balance sheets of these “solvent” banks were. Someone needed to … read the actual report.
6. Although Nyberg has the expected hedging paragraphs on the guarantee (on the one hand, on the other hand), overall it’s a damning indictment. He politely but damningly subtitles that section of his report “Securing Tomorrow”. Literally — they needed the banks to be able to borrow on interbank markets the next day. The rest is history.