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Misjuding Risk - Causes of the Systemic Banking Crisis in Ireland (1)

Misjuding Risk - Causes of the Systemic Banking Crisis in Ireland (1)

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Published by: Politics.ie on Apr 19, 2011
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04/19/2011

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MISJUDGING RISK: CAUSES OF THE SYSTEMICBANKING CRISIS IN IRELAND
REPORT OF THE COMMISSION OF INVESTIGATIONINTO THE BANKING SECTOR IN IRELAND
MARCH 2011
 
 
TABLE OF CONTENTS
EXECUTIVE SUMMARY I
 
Introduction i
 
Preconditions for the Crisis i
 
Contagion ii
 
Consensus iii
 
Flawed lending: Anglo and INBS iv
 
The Herd: Other Banks v
 
The Silent Observers: External Auditors vi
 
The Enablers: Public Authorities vii
 
Policy with Insufficient Information: the Guarantee ix
 
Some Lessons ix
 
ABBREVIATIONS XI
 
CHAPTER 1- MANDATE, METHOD AND BACKGROUND 1
 
1.1
 
Mandate 1
 
1.2
 
Previous Scoping Studies 1
 
1.3
 
International Developments 2
 
1.4
 
Main Issue of this Report 5
 
1.5
 
Assigning Blame 6
 
1.6
 
Herding and Groupthink in Financial Markets 7
 
1.7
 
Method of Work 10
 
CHAPTER 2 - THE PROBLEMS WITH THE BANKS 12
 
2.1
 
Introduction 12
 
2.2
 
Setting the Scene 12
 
 
 
2.3
 
Market Shares Threatened 20
 
2.4
 
Business Models and Strategies 22
 
2.5
 
Governance and Procedures 26
 
2.6
 
Remuneration 29
 
2.7
 
Lending and Credit 31
 
2.8
 
Funding, Liquidity and Capital 38
 
2.9
 
Risk Management 44
 
2.10
 
Internal Audit 47
 
2.11
 
Behavioural Factors 48
 
2.12
 
To Sum Up - the Mechanism of Contagion 49
 
CHAPTER 3 - EXTERNAL AUDITORS 51
 
3.1
 
The Issue 51
 
3.2
 
Background 51
 
3.3
 
The Statutory Audit and Going Concern 53
 
3.4
 
Auditing Irish Banks 53
 
3.5 Audit Limitations and an “Expectations Gap” 54
 
3.6
 
Other Communication by Bank Auditors 55
 
3.7 General Auditor Concerns in early 2008 56
 
3.8 Auditor Bank-Specific Communication with Authorities 57
 
3.9 Auditor Communication with their Clients –The Covered Banks 58
 
CHAPTER 4 - THE ROLE OF THE AUTHORITIES 59
 
4.1
 
Introduction 59
 
4.2
 
The Policy Challenge 59
 
4.3
 
The Financial Regulator Pre-Crisis (2003 to mid-2007) 62
 
4.4
 
The Central Bank Pre-Crisis (2003 to mid-2007) 66
 
4.5
 
The Department of Finance Pre-Crisis (2003 to mid-2007) 69
 

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