Serious mistakes were made by Irish banks and this could not be allowed to happen again, the executive chairman of Allied Irish Banks, David Hodgkinson, has told the MacGill Summer School.
In a lecture on the future of Irish banking, he said the Government had to put an enormous amount of taxpayers’ money into AIB and other banks and rightly expected rigorous governance, protection of its investment and active support for the economy.
“In the excellent film ‘Senna’, the documentary currently showing in cinemas on the life of the Brazilian racing driver, there is a scene where suddenly a new racing car comes on the circuit that starts winning everything. Senna, like all the racing drivers, becomes obsessed and wants the same technology as this car so he too can burn up the track.
“The scene could be a metaphor for what happened in Irish banking. Everybody, or most at least, in Irish banking sought to ‘out-Anglo’ and the carnage at the end has not, metaphorically, been much different to what happens at the end of the Senna documentary,” he said.
"The Nyberg Report made it clear that herd mentality and group think amongst a range of parties was a key issue in the banking crisis.
"In AIB’s case, there was a major control issue. Effectively separate banks were operating within the overall structure and these were not subject to the control or risk functions that should have applied," he said.
"Now, the board and the Government had undertaken at AIB what is certainly one of the biggest corporate restructurings ever carried out. Part of the change this had driven was moving AIB to a single bank model and this would enable the control functions to operate.
"As of this week’s agm, not one member of the 16-member board of three years ago remained in place. Likewise, the Executive Committee, the bank’s top executive team, was now an entirely different group of people than three years ago. Some were previously in other roles in the organisation but many were new to the Bank," Mr Hodgkinson said.
"AIB’s culture was wrong and new principles were being set down for everyone in the bank from boardroom to branches. The bank’s customers felt disconnected and even though there is money to lend, people felt they cannot get access to it. We have to help customers understand better the information banks need so they can lend to them."
“We are introducing simpler application processes. In short - we must achieve easier and more productive interaction between ourselves and our customers. So far, in pursuit of that vital goal, we have begun to simplify the structures for customers. We are tracking and following up on all loan requests by businesses.”
However, it was a reality that “many sectors most in need of support, such as hotels, pubs and restaurants, face issues of market over-capacity, and lending more in such circumstances is often not in anyone’s best interests”.
"It was also a reality that many business and personal customers who could afford to borrow were nervous. In the present economic environment they were opting to defer investment and spending," he said.
"If I may approach the tomb of the forbidden subject of pricing for a moment, it is also a fact that banks must charge more for credit if they are to achieve commercial viability.
“While this is a very unpopular concept given the amount of taxpayers’ money that we have received – it is nevertheless simply not possible to build a sustainable future for any bank that is lending funds without getting a return."
