Ireland's banking crisis laid bare

Excessive remuneration, a lack of skills in the financial regulator, irresponsible lending and a "national blind-spot" for property acquisition were all to blame for Ireland's distinctly "home-made" banking crisis.

By now, the reasons behind Ireland's banking woes should be evident to most people locally, but international experts have just released a highly critical report - "A preliminary report on the sources of Ireland's banking crisis" by Klaus Regling and Max Watson - which lays them bare.

Regardless of whether had Lehman Brothers' collapse sucked liquidity from the banking system in 2008, the "severe concentrations in lending on property" meant that "serious stress in the financial system was almost unavoidable", says the report.

Central Bank governor, Patrick Honohan, has also released a scathing report into Ireland's banking crisis during a week of introspection from the powers that be.

The huge bonuses and generous stock options offered to senior management within Ireland's banks have been under scrutiny for some time now. However, the Regling-Watson report, suggests that incentives lower down the ranks also contributed to excessive lending where internal procedures were over-ridden "often systematically".

"One should not neglect incentives set for middle-level bank management and indeed loan officers," says the report.

So, why wasn't all this spotted by the regulator? Although it's response to the build up of risk has been praised after the event, it was "not hands-on or pre-emptive".

"It is clear that there was a serious lack of skills, and to some degree of numbers of people, in the regulatory authority. This would have impeded any pursuit of a very active inspection programme, making it harder to quite literally "get inside" the management philosophy, operational practices, and governance processes of individual banks," says the report.

That would explain the recent hiring spree at the regulator, then.

Some of the supporting charts in the report (below) also illustrate the resulting contrasting fortunes of the various Irish institutions.

Anglo Irish - the most high-profile casualty - has an annual average loan growth rate of 45% between 2003-2006 and by the end of that period nearly 80% of those were in property.