Unanswered Questions ?

The single-reason explanation for Ireland's banking catastrophe was a drastic deterioration in the quality of the lending done by the major lenders.

An aspect of this constantly mentioned in popular discussion is that this resulted from "bankers' greed" otherwise known as the so-called "bonus culture". Anecdotally, one hears that lenders at relatively senior level were receiving weekly cash bonuses in return for boosting the volume of loans advanced.

If true - and there does seem to be some truth at least in the anecdotes - this was indeed incompetent management of a high order.

Just as incompetent, but less commonly criticised (probably because so many, including journalists, are beneficiaries), was the banks' collective decision to extend home mortgage loans almost exclusively on a "tracker" basis. What this meant was that the customer paid interest at a rate above "the ECB rate". Unfortunately, the banks could never actually borrow the funds from the ECB at that rate, and now are left with half of their home-loan portfolios guaranteed to lose money even if the borrowers pay up in full.

Before writing this post, I turned to the three major reports (Honohan, Regling & Watson and Nyberg - N.B.all are PDFs) on the disaster to see what they had to say about these two major blunders. From my quick searches (I have still not read the reports in full), I found nothing substantial said about either.

They do appear to confirm that there were inappropriate incentives in the remuneration systems, and that the tracker lending was as badly priced as it seemed from media reports. Significantly,however, they offer no explanations for how these practices developed, whether they were appreciated as such by top management or board directors or whether there was any controversy about them whether internally, or externally (with regulator or auditor).

For me, this is less forgiveable, or even understandable, than the more general failure by these reports to assign blame to individuals for the overall situation. Moreover, while there is an effort to explain the latter by reference to atmospheric issues such as "group-think", excess optimism and the like, the pure incompetence of bad pricing (of the trackers) and bad remuneration practice attracts no attempt at explanation.

Worse than that, I have seen no sign that anyone has been asking the questions.

I hope that some reader can show me that I am mistaken.