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Monday 11 December 2017

Current auditing standards would not be able to detect the problems which occurred at Anglo Irish Bank in 2008.

Current auditing standards would not be able to detect the problems which occurred at Anglo Irish Bank in 2008.

Standards have changed so little in the past seven years Anglo would still look as if it was on target for half a billion euro in profits instead of actually being insolvent, Prof Eamonn Walsh, Professor of Accounting at UCD told the Banking Inquiry.

Asked by Deputy Pearse Doherty if using today's standards Anglo would appear to be in profit, '

"There has been no change in standards so one could reach much the same conclusion today as one would have reached in 2008."

The inquiry has also heard how inaction by both the Central Bank and the Banking Regulator had resulted in "costly failure" and how political bias may have unduly influenced the decision to bring in the Bank Guarantee.

Economics Professor Gregory Connor from NUI Maynooth said the Bank Guarantee was "clearly wrong on balance"

He added "I think there was political bias. I suspect they thought what's best in our political situation" instead of looking at it from the perspective of the public.

The property development community, he said, "had a very strong relationship with members of the Dail" and he suspected that that too played a role but this area was beyond his expertise.

Prof Connor described "light touch banking regulation" in this country as the "second worst in the world" - second only to Iceland at the time.

The Irish Central Bank and the Regulator, he said, should have blocked the enormous growth in property lending by domestic banks and the excessively fast debt capital inflow at the time.

Both of them "should have said stop".

"In terms of preventing the Irish crisis this inaction was a very costly failure".

Prof Walsh explained how at the time of the banking crisis "unfortunately accounting standards were especially unhelpful ".

He stressed however that auditors were "really quite limited" and largely concerned with making sure financial statements were prepared in accordance with international accounting standards.

Red flags from auditors "are going to come late in the day - really just at the stage where the ship is sinking and has hit the bottom of the sea bed."

The UCD professor also pointed out that while the accounting rules had not been changed since 2008 there was now provision for future change in 2017/18 which would require banks to record some sort of estimate of expected losses so problems could be recognised earlier.

Prof Connor told the Inquiry he believed the economic crash was perhaps the one time where "some single individual or some small group could have stopped the banking crisis from happening.

"If one or more senior officials in the Irish Central Bank had shown the wisdom and strength of purpose" to block the debt capital inflow or the risky property development lending "the crisis would not have happened."

The expert on portfolio risk analysis and security market pricing, said Irish bank managers "are quite correctly blamed for irresponsible lending policies during the credit bubble".

The shareholders too "pressurised bank management to pursue risky strategies" with an expectation of rapidly increasing annual earnings and dividends.

Economists should have "spoken more forthrightly" and had to share some of the blame.

Anglo Irish Bank and Irish Nationwide, he said, should have been left out of the Bank Guarantee and restructured.

In response to questions from Deputy Michael McGrath said he felt "quite strongly" that there were senior people at Anglo and Irish Nationwide banks knew the banks were insolvent and the regulatory authorities should also have known.

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