Minister’s Brief

Annex I
Findings in relation to the Minister and Department of Finance
In Chairman’s Introduction
Systemic misjudgement of risk.
Failure to identify risk posed by banking system to the overall financial stability of
State.
There were two crises, banking and fiscal. These were directly caused by 4 key failures
in Banking, Regulatory, Government and Europe.
The Government presided over unprecedented growth in tax revenues but adopted a
fiscal policy where long-term expenditure commitments were made on the back of
unsustainable cyclical transaction taxes. This gulf was exposed when the crisis hit,
laying bare a significant structural deficit.
A key Government, CB & Department of Finance (D/Finance) failing was the universal
adoption of the soft landing theory without any substantial test or challenge. The
failure to take action to slow down property prices was based on this flawed theory.
Guarantee option was considered as early as January 2008, but by 30 September
decision makers were forced to decide on a course of action in the absence of
accurate information. No in-depth analysis of banks was undertaken before
September 2008.
While Ireland’s entry into a Programme became inevitable, ECB put undue pressure on
the Government.
There is no guaranteed formula to avoid another crisis apart from constant vigilance
and early preventative action.
State Institutions
Soft landing theory was never tested. This affected failure to tackle house price
increases.
Establishment of complex IFRSA led to ambiguity of roles between CB & IFSRA.
Government should have carried out a review of IFSRA post implementation. The
absence of interventions in IFSRA directly contributed to crisis.
D/Finance relied on overall assessment in CB Financial Stability Reports, and did not
carry out adequate independent analysis of the specific risks.
D/Finance was too reliant on external agencies, e.g. IMF/OECD/European Commission
for economic forecasting and did not do sufficient analysis of risks highlighted in
international reports & in speaking notes to the Minister.
Government Policy & the Oireachtas
Tax policy contributed to the structural deficit, which was not recognised until the
crisis. Transfer to pro-cyclical taxes led to vulnerable fiscal balance.
Fiscal policy led to significant long-term expenditure commitments on the back of
unstable cyclical transaction taxes.
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