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Column: Nick Leeson on how the Nyberg Report cannot just pay lip service to reform

In his latest weekly column for TheJournal.ie, Nick Leeson writes that if the banks behaved like kids in a sweet shop, then the government and the regulators were like the negligent parents who let them.

Nick Leeson

THE NYBERG report of the inquiry into the causes of Ireland’s catastrophic banking collapse was completed last month and its findings will be discussed by the Cabinet later today.

It is believed that it will stop short of overly criticising the former Fianna Fáil-led government. If that is the case, the only conclusion that I can draw is that it is flawed.

It is impossible for anybody who had a role in banking control to avoid criticism. Policy is set and overseen by an elected government, and finance is a central theme that runs throughout the policy decisions that are made.

Not only is there a Department of Finance but there is a Central Bank and a Financial Regulator. That all were asleep on the job at the same time is inexcusable – and there has to be some accountability and in turn responsibility taken.

School Report

Last week, Moody’s downgraded its rating for Irish sovereign debt to a new low.

It cut Ireland’s credit rating to Baa3, one level above junk, and says the nation could struggle to cut its deficit because of weak economic growth.

Think of the downgrading as a school report on the former government – thankfully they are no longer in power – but the fact is that they were failing, and failing badly.

Credit was too cheap and too readily available. Whilst credit is still cheap, there is none  to be had, or at least not for those who need it. This is a direct result of poor governance.

As a parent, I know that if I give my son a load of money to go into the sweet shop, he’ll spend it and gorge himself on as many sweets as possible. It won’t happen immediately, but after a year or so of this lack of governance on my part, decay will set in, which in turn will get worse and worse.

The banking system behaved like a child in a sweet shop. The banks themselves should have been monitoring our ability to repay from a personal level and in turn a competent authority should have been monitoring the risks in the system and the overall level of indebtedness.

It is only now that the banks are getting a handle on their real exposure.

In Ireland, more so than in any other jurisdiction, the rule book was thrown out of the window. Paperwork was rushed through to facilitate loans, dubious degrees of title were attained on property, and probably more damaging, the tests on the ability to repay were either overlooked, or not given the appropriate level of attention. It’s for this reason that I question if we are nearing the end of this damaging cycle or are still very much entrenched within it.

The large corporate or development debt is, or has been, dealt with but I believe that there are myriad personal guarantees and personal loans that still need to be worked through. Many of these, I believe, will be proven to have been granted in questionable circumstances.

Herd Mentality

The Nyberg report is expected to criticise the “herd mentality” that prevailed in banking and among the regulatory authorities, where there was a strong culture of consensus, and where any challenge to this was strongly discouraged. This is unacceptable, there has to be challenge to any system and effective challenge at that.

My own actions at Barings years ago weren’t challenged once during my time in Singapore, and this was a fundamental reason behind the demise of the bank. Recent financial history is littered with scandal, both globally and here in Ireland. Each of them should serve as a warning signal about the poor level of governance. The fact that nothing meaningful has been done about it is inexcusable.

Warning signals are useless, unless they are acted upon. Corporate governance and the quality of regulation has to improve and nowhere is this more important than in the financial sector.

In the UK recently, an Independent Commission on Banking brought forth their recommendations to safeguard against another systemic banking collapse. Like its English counterpart, I worry that the Nyberg report will do little more than pay lip service to the reforms that are needed.

The quantity of regulation will never improve the system; only the quality of that regulation matters.

And whilst there have been improvements in some sectors around the world, there is still a long way to go. Nobody has further to go than here in Ireland.

Fianna Fáil presided over the biggest financial collapse ever in this country. The electorate held them accountable in the last election – and rightly so.

I am sure that we will see a certain amount of rhetoric in the Dail this week attempting to shift the blame – but that would be wrong.

What is important now is that we effect change, and that the change is effective.

Read more Nick Leeson: Why has no-one gone to jail for the Irish banking collapse?>

Portrait of Nick Leeson by David Cantwell

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