Little dissent or debate from directors lacking expertise

BANK BOARDS:BANK BOARDS during the bubble period had inadequate financial expertise and did not understand the risks to which the institutions were exposed, according to the Nyberg report.

Peter Nyberg said bank boards had “a collegiate and consensual style, with little serious challenge or debate”.

Non-executive directors did not have the skills to assess lending and funding risks. While they were formally independent, they were in practice highly reliant on the knowledge, openness and ability of bank management.

Many non-executive directors, but also some members of senior management, seemed to have believed that the existence of formal policies and structures were, on their own, sufficient for prudent management.

Boards and management, the report said, appeared to have had little appreciation of how the banks were actually run at grass-root level. “The inadequate attention banks generally paid to credit risk management is, in the end, evidenced by the extent and nature of their subsequent problem loans.”

The report said senior managers and boards did not appreciate how general growth targets affected operations lower down in the operation. The establishment of targets for profit growth really implied a partial change in business model, and occurred without the necessary corresponding strengthening of governance, procedures and practices.

Boards and management seemed to have been totally unprepared for property loan impairment and funding problems occurring simultaneously. “This must be seen partly as a direct consequence of the insufficient attention paid to the assessment and management of risk over several years,” the report said.

The report said bank boards and management feared the consequences of not trying to be as profitable as Anglo Irish Bank. They feared losing customers, losing bank value, the potential for being taken over, “and a loss of professional respect”.

Bank management and boards gave in to this pressure, “in the bigger banks more so than in the smaller ones”. Some bank boards “adopted general high-growth credit volume or profit targets without apparently really understanding how they would be implemented in practice by staff”.

A number of board members interviewed indicated to the commission there was a strong preference for consensus on boards as well as among managers.

“It appears to have been difficult for individual members, especially those without banking experience, to express and maintain a view contrary to the majority view on the board.” In some cases contrary views were, in time, dropped by individuals who adopted the majority view.