IRISH NATIONWIDE:IRISH NATIONWIDE Building Society (INBS) operated without "checks and balances" normally considered necessary in banks, according to the Nyberg report.
Credit management at INBS was “unusual in many respects”, the commission found.
Credit policies were applied “very flexibly” and the building society had “no effective, independent credit risk management”.
A number of “essential, independent functions either did not effectively exist or were seriously under-resourced”, said Nyberg.
The report found that the Financial Regulator raised “significant concerns” regarding covering at INBS over the 2003-2008 period under Nyberg’s investigation.
The regulator raised minimum capital ratios for INBS and Anglo but “such remedies did not prove effective to ensure sufficiently greater prudence and accountability in either of the banks”.
Despite the fact that the regulator detected numerous governance and process issues at INBS from 2003 to 2008, and before, it “remained hesitant to take effective action even when the engagement with INBS resulted in little material change”.
As a result, the “very significant risks” in the INBS business model “had time to develop essentially undisturbed”, the report said.
The report said that INBS managing director (Michael Fingleton) had been given “extraordinary powers” by the board and many staff reported directly to him.
The board had formally delegated its powers “for the practical, effective and efficient management, promotion and development of the bank to the managing director”, the report said.
“This delegation of powers was most unusual given its vague and general formulation. Indeed, it is not immediately apparent what limits to this empowerment were.”
INBS failed to hire skilled and experienced staff that were necessary to manage the lender’s growing and more complex loans.
The report said that the building society’s €5.5 billion non-Irish commercial loans were handled by just two managers.
Management at the lender assumed that focusing on a limited number of “traditionally good customers was in itself safe enough”.
INBS’s top 25 customers accounted for 51 per cent of commercial loans in September 2008.
The commercial loan book had grown from €2 billion in 2000 to €9.8 billion in 2007. The report found that the overarching driver of growth at INBS was the demutualisation and its future sale.
INBS was more of “a venture capital financier” than a typical bank, the report said, as it was involved in risky development lending and typically took profits of up to 50 per cent in deals.
The Government has pumped €29.3 billion into Anglo and €5.4 billion into INBS to cover losses.
The INBS credit committee primarily comprised lenders who normally would have been challenged by such a committee.
The building society operated without a head of commercial lending or a chief risk officer for most of the 2003-2008 period.
Risk or credit functions that did exist were not independent as they reported to the managing director.
The INBS board had only three non-executive directors for most of this period and rotation was modest while the directors had little practical banking experience.
