2008 FORECAST:THE HEAD of the Organisation for Economic Co-operation and Development (OECD) yesterday accepted the organisation got it wrong in its report last year on the health of the Irish banks.
In its report on Ireland last year, the organisation said the Central Bank and the Financial Services Authority of Ireland “had clearly identified the major vulnerabilities and taken action to mitigate them.
“The Irish banks are well capitalised and profitable, which provides a cushion to weather the more difficult times ahead.”
OECD secretary general Angel Gurria, in a briefing with journalists, was asked how the organisation could have gotten it so wrong in relation to the collapse of Irish banks.
“We did not see it coming certainly. And nobody else did,” he said.
He said the organisation, in its report, relied very heavily on the information it got from the Central Bank and the Financial Regulator. What was said was “evidenced based”.
Mr Gurria said there was a “massive regulatory failure” and a “massive failure of supervision”.
In many cases the regulations were “not so badly written, but the supervision was nowhere to be seen”.
He said he was talking about “everywhere”, including Ireland.
On the side of the banks, there had been “a massive failure” of corporate governance. “Where were the audit and risk management and the credit committees?”
He also said the Irish banks had outgrown Ireland and sought to grow their business abroad. This put pressure on the banks which mitigated against being prudent.
Sebastian Barnes, who wrote the report on Ireland for the OECD, said Ireland was a “particularly difficult country to call”.
The growth that had occurred here during the 1990s was “unprecedented” for a country in the OECD, and 15 years ago Irish housing had been “unbelievably cheap”.
Property prices were always going to grow but needed not to grow too much. “It was hard to call.”
He said the regulators were examining each individual bank but no one was looking at the overall market and systemic risks. The organisation had been surprised by how quickly the property market had fallen and how bad it got. Mr Gurria said that Ireland had achieved much during its boom years and that advances in its quality of life, such as achievements in education, would not go away.
Mr Barnes said there had been an unsustainable pace of increase in public spending and that it may be time to “unwind” some of what had occurred in more recent years.
Mr Gurria said the future would involve a lot of “green growth” and the current crisis was an opportunity to shift to more “green” policies.
