SERIOUS MISTAKES were made in Irish banking in the course of the current crisis, former AIB group chairman Dermot Gleeson SC has told the MacGill Summer School at Glenties, Co Donegal.
Loans were made which should not have been made. There was “irrational exuberance” in the air and the banks were not immune from it.
Stockbrokers and most financial journalists joined international financial consultants in the praise for Anglo Irish Bank up to 2007 and this eventually had some effect on AIB.
Banks and bank regulators failed to appreciate the vulnerability of foreign borrowing. Executive remuneration became excessive but he would find it difficult to say that this directly contributed to the “bubble”.
“As a former Chairman of AIB the first thing for me to say in plain and unvarnished language is that some serious mistakes were made in Irish banking and there is absolutely no getting away from that,” Mr Gleeson said.
But there were international causes of the crisis as well as mistakes in public policy at national level in addition to the mistakes made by the banks themselves.
At a national level, public spending expanded too much on the basis of unsustainable tax systems; there were too many construction-related tax reliefs; and monopoly power was not sufficiently addressed in the professions. The general public played a role as well, through participation in the property bubble and becoming “amateur landlords” and by voting against the Lisbon Treaty.
“The very public rejection of Lisbon by a number of media personalities and public commentators in some instances was evidence itself of a sort of hubris and pride to which the nation had in some way fallen victim. That mistake must not be repeated in October.” Describing banks as “the nervous system of the economy”, he said it was very hard for them to remain immune from the “irrational exuberance” which was widespread in the community. He added that, “if the bank next door is giving out very cheap loans you may have to try and come close or else go out of business.”
He said that, in 2007, “sophisticated international financial consultants” were still recommending Anglo Irish Bank as “a model for other banks to follow and emulate”.
“When I was chairman of another bank, I often had investors or shareholders or customers saying, ‘Why can’t you be more like them?’ and the house policy was to resist it and that was the correct policy, but, inevitably . . . the presence of a competitor who appears to be striding ahead of you, certainly is taking customers from you, certainly is gaining market-share, is being lauded and applauded, not just by its own promoters – although they did a reasonable job – but by analysts and merchant banks worldwide, that does have some effect,” Mr Gleeson said.
