FORMER AIB non-executive director Jim O’Leary has said it was a matter of “profound personal regret” that he did not speak out more strongly during the property boom to warn of a possible collapse.
Speaking at the MacGill Summer School, Mr O’Leary also said top bankers were susceptible to a condition known as “disaster myopia”.
This condition showed itself in an “increasing tendency to discount the probability of a disaster occurring, the longer the interval of time that has elapsed since a disaster last occurred”.
Disaster myopia was reinforced by competitive pressure: “Dealing with the threat from competitors and defending or increasing market share is real, but disaster is an abstraction until it breaks.”
During the property boom, the dominant belief among senior bankers was that the economy would achieve a “soft landing” where values would “plateau or fall modestly” rather than crash, he said.
“During the boom years, banks performed spectacularly well in terms of profits and share price growth. It is now clear of course that this performance was bought at the price of greatly excessive risk-taking.
“Was the scale of risk-taking such as to be reckless? Looking back from a point in the middle of the wreckage, recklessness seems like a reasonable word to use but, of course, this is hindsight bias at work.”
At the time the future looked different. With regard to the property market he remarked that, “undoubtedly the sceptics could have and, with the benefit of hindsight, should have, articulated their doubts much more consistently.
“Whether this would have made much difference is something we will never know, but it is a matter of profound personal regret to me that I wasn’t more forceful in setting out the contrarian view and didn’t work harder at analysing its implications.”
The crisis and its consequences would live on in the memory of borrowers and lenders: “The result will be much greater risk aversion [and much more highly-priced risk] than obtained in the boom years”.
Mr O’Leary warned that, in attempting to solve yesterday’s problem of excessive risk-taking, policymakers might exacerbate tomorrow’s, namely, excessive risk aversion.
Chairman of the Green Party, Senator Dan Boyle said that debate had centred increasingly on Anglo Irish Bank and its future, “or whether it has a future”.
“We may be coming close to a time when the alternative of phasing out the bank over a shorter time period will become the more cost-effective option,” he said.
“Anglo Irish is a failed bank, a now notoriously failed bank. The policy priority has to be about cutting losses and not about rescuing the bank in whatever form.”
He rejected any suggestion that the bank was being maintained for political reasons: “As far as the Green Party as a part of Government is concerned, there is no political purpose for maintaining Anglo Irish Bank, or however it is to be rebranded, for the sake of being maintained.
“The thinking behind the current policy has solely been based on achieving a minimum cost to the taxpayer,” Mr Boyle said.
