Tag Archives: banks

Banks not at fault on tracker mortgage scandal

The banks are not at fault in the tracker mortgage scandal. While banks, as corporate entities, may have legal persona of their own they are not responsible.  

Some no doubt will be tempted to read this as the banks being, as ever, irresponsible.  But individuals within the banks, as yet unnamed and unknown, they are the people who are responsible for the tracker mortgage scandal.  Our fetish about blaming “the banks” is symptomatic of a wider problem. Nobody is ever at fault for anything.

Quite rightly the banks are the focus of a lot of ire.  Banks are however composed of individuals.  When we speak about the culture of banking we are not speaking about something divinely ordained. We speak instead of a human construct. This construct is maintained and transmitted across organizational generations. Changing corporate cultures is immensely difficult. Management researchers have long known that culture will always trump over strategy. That is why the government’s policy of blaming the banks as a collective entity is not just pointless is positively wasteful and harmful.

The Irish banking market consists of a few players.  All the main consumer facing banks have been dragged into the mess of the tracker mortgages. The response, from government and opposition, has been to threaten the banks with financial sanctions.  The same people who are doing the threats know full well that any such financial sanctions will be passed on to consumers. Irish banks of still rebuilding their strength after the disastrous crash.  Even more ludicrously, some of the extremes and fringes have been calling for the banks to be stripped of their banking licenses.  Quite how this would then leave the country is never specified. But it makes for a good headline.

More generally, the calls have been for more and better regulation. The central bank has not covered itself in glory in relation to its dealings with the banks. The apparatus of the state is quite happy to adopt a softly softly approach to banks, pleading and cajoling that they do the right thing.  This is the same state that is quite willing to adopt a heavy-handed, indeed a punitive approach to those people who dare to question whether not there should have to have a public sector card.  If you’re a widow who refuses to play along with bureaucracy of the state then you will have your income stopped, and have to go to court in order for the court to determine that in fact this was incorrect.  If you are a banker who has knowingly or otherwise caused individuals to have significant financial burdens as a result of your decisions, then the state will simply speak nicely to the organization and ask for it to do better next time. 

We need a complete culture change in the Irish banks.  Indeed we need a culture change across all major organisations.  We have an abundance of regulations around banking capital, around banks interactions with individuals, and around banks operational and financial risk. What we do not have is any real sense that the regulators are concerned with the culture of the banks.   A large part of the problem may be that regulators are overwhelmingly drawn from those with an economic or a legal background.  Neither of these disciplines is noted for its path breaking approach to considering organizational culture.  Economics in particular is quite resistant to taking on board the views of other areas.  

This is a pity because organizational studies have for decades been evaluating the nature, measurement, and levers for change around organizational culture. Organizational culture not only can be measured it can be changed.

It is  instructive that the central bank is to commission a study of the organizational culture of the banks, and of the major units.  A paper from the New York Fed reserve suggests, by means of a case study, how banking culture change q can be done. Beyond that it shows how existing regulatory tools can be used to effect the change in the organizational culture backs. We have the tools should we decide to use them.

 More generally we need a culture change in this country in relation to assigning blame. Nobody is ever held to account. Individual human beings make decisions around tracker mortgages. Individual Gardai input iincorrect data in relation to drink-driving. Individuals make decisions around placement of vulnerable people such as “Grace” into care or not.  Individuals within the bureaucracy of the state make decisions about imposing their bureaucratic will in relation to the public-sector card.  

We keep bringing the chief executive or equivalent of these organizations into various parliamentary committees. Prepared within an inch of their life by public relations specialists they generally give a good account of themselves, giving the minimum necessary information and where necessary eliding, avoiding, and sidestepping. This is perfectly understandable. Everyone of us would do that.  As the leader as they are ultimately responsible for the actions of their organisations. But it would be very interesting to have named individuals who actually undertook the actions to come and give an account of themselves. 

 Let’s see a principal officer in a government department  called in front of a committee and asked to account for the actions of themselves and their junior staff in relation to the public sector card;  let’s see the bank officials who actually operationalized the tracker mortgages;  let’s see gardai and sergeants who inputted information into the system around the drink-driving situation;  let’s see executive chefs in hospitals who presided over a ghastly food culture where individuals en cardiac wards are served greasy fry ups.  This no doubt will be extremely uncomfortable for each individual.  But we have a responsibility, as a moral human being, to take responsibility for actions.   Blaming “the system” depersonalizes, and ultimately dehumanizes, the decisions that are made.  Let’s name, and where necessary shame.

Brexit and the General Elauction

great briitain leaves european union metaphorWith the general Elauction underway we can expect the minds and energies of our political leaders to be focused elsewhere for the next month or so.  However, the world doesn’t stop when the posters go up. Neither, to be fair, does the government or administrative policy making, but it slows. In the context of BREXIT, this may be problematic

Continue reading

Hyperbolics, Banks and Elections

There is an interesting opinion piece in the Irish Times today, by Michael Noonan, the finance minister.   It is being spun as “were going to get our money back from the banks”.   This is not the first or second time of course we have heard that we are going to get the money back, and it will not be the last.  We need to take enormous caution when interpreting what politicians say, especially when they talk about banks, and especially when they talk about banks in the run-up to an election. Continue reading

Irish Banks : overvalued, overleveraged and underdeposited

This is a horrific snapshot. Its taken from a brand new paper by Thorsten Beck, presented to a conference on the Irish economy today. It compares the Irish banking system as of 2011 to a broad set of international benchmarks.  It suggests, in other places that Irish banks need to delever (reduce credit) by about another 20% and that mortgage lending might contract by the same.

Good job we turned that corner eh?

Irish Banks - Knee deep in the brown stuff and all alone

This is a really interesting chart from the European Banking Association Transparency exercise report published yesterday

RWA are risk weighted assets (loans) and Capital Effect is the trend in the core capital of the banks
From the report (my emphasis and comments in brackets)

13. An analysis has been carried out to further investigate the driver of the Core Tier 1 capital ratio  evolution and to decompose its variation into capital and RWA components. Chart 5 illustrates the  relative importance of the Core Tier 1 (numerator) and RWA (denominator) effects on the EBA  Core Tier 1 ratio by jurisdiction, which helps to explain whether capital increases have been driven  by injections of new capital or by de-risking and deleveraging. The main results of this analysis are:
a. The improvement of 170 bp (from 10.0 to 11.7%) recorded over the 18 months ending in June 2013 has been the result of both an increase in the EBA Core Tier 1 capital (80 bp)  and a reduction of RWAs (90 bp). [overall banks are healing]
b. In one country (IE, area Q4-b) there has been a reduction of EBA Core Tier 1 capital ratio, due to a decrease of capital, partially offset by a reduction of RWAs. [irish banks shrinking but capital shrinking faster than assets. this is not good…]
c. In eight countries (Q4-a and Q1-a – AT, BE, DE, DK, GB, IT, NL, SI), whose banks account for around 56% of the total, the improvement in the EBA Core Tier 1 ratio has been mainly  driven by a reduction of RWAs. [in the main the improvement comes from deleveraging – smaller banks]
d. In six countries (Q1-b – CY, ES, FR, HU, NO, PT, 35% of the total) the impact of higher  EBA Core Tier 1 capital has been larger than the impact of the decline in RWAs. [these are in effect recapitalising]
e. In six countries (GR, FI, MT, PL, SE and LU – area Q2-a, 7% of the total) the increase in the EBA Core Tier 1 capital has been partially offset by an increase of RWAs.

What will Irish Banks lose on residential mortgages?

A small amount say Fitch. But thats based on tales from the banks.

The agency expects loan arrears to peak in 2014, and that 40 per cent of loans that are more than 90 days in arrears will begin to “reperform”. Another 40 per cent will be the subject of some type of writedown, with 50 per cent of the debt in this category being written off. The final 20 per cent of loans will see the associated properties being repossessed.

Overall, the agency believes 4.8 per cent of outstanding mortgage balances (ie, €2.2 billion) could be lost by the banks.

via Repossessions for one in five mortgages in arrears, says Fitch – Financial Services News | Business News | The Irish Times – Tue, Dec 17, 2013.

hang on…

As of September 2013 we had 99189 cases over 90 days, with 18.8b in mortgage loans outstanding.  40% of that is 7.5b and if they lose 50% of that book its already 3.75b. Then if we repossess 20% of the cases and presumably sell they will also lose at least 50% . Thats another 1.8b. So we are at 5.6b losses. Then we have the remaining 40% which will re perform..fully it seems.

Unless only really really good houses with high LTV remaining are going to be repossessed im not sure where the Fitch figures are coming from.   Add into the mix the catastrophic figures on Buy to Let (7.7b over 90 days , presumably most should be repossessed and sold at a 50% plus loss, another 3.35b.

Rather than 2.2b in mortgage related losses, which seems low, we could (but hopefully wont) see closer to 10b in mortgage related losses yet to be seen by the Irish banks. No wonder Mario Draghi is concerned
but dont worry… tis but a scratch



From Hubris to Nemesis: Irish Banks, Behavioral Biases, and the Crisis

This paper, with Michael Dowling of DCU, takes a look at the behavioral aspects of Irish banks over the crisis period. It is forthcoming in Journal of Risk Management in Financial Institutions, next march. A final version can be downloaded from the link.


“The collapse of the Irish economy, still ongoing after five years, has its roots firmly in the banking sector. Lax risk management, aided by poor board oversight and behavioral biases among senior executives, is now viewed as one of the primary causes of the over- lending during the ‘Celtic Tiger’ years which fueled the excessive growth in credit and subsequent banking implosion, eventually resulting in all Irish banks ending in state ownership. We approach the causes of the Irish banking sector collapse from a behavioural perspective of the role of Boards of Directors in bank risk management, and then proceed to explore the likely presence of behavioral biases among senior executives in Irish banks. The Irish context provides a pertinent case study of what can happen when hubris and associated behavioural biases take control of a bank’s risk management strategy.”