Warning signs ‘were ignored’

WARNINGS from both home and abroad that Ireland was walking an economic tightrope were ignored, according to the two reports into the origins of the banking crisis.

Although the reports accept that warnings from the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) could have been pointed, the Regling Watson Report and the Honohan Report claim concerns were not heeded.

According to the Honohan Report, there was even a “defensive response” to concerns raised as late as in 2007 by UCD economist and long-standing critic of Government fiscal policy Morgan Kelly.

“The two 2007 articles by Morgan Kelly, while not backed up by in-depth quantitative research on the Irish situation, should nevertheless have raised more warning flags than they did and prompted a rethink of the reassuring message of the FSR (Financial Stability Reports), published in November of that year,” the report states.

One article, in the ESRI Quarterly Commentary in the summer of 2007, claimed house prices could be expected to fall by 50% – which elicited a defensive response.

According to the Honohan Report, the Financial Regulator’s Financial Stability Reports did little to induce banks to adjust their behaviour, although it claims warning signs from outside bodies were not as clear as they could have been.