MASTER’S DISSERTATION Is a lack of action by the Domestic Irish Banks hindering Ireland’s Economic Recovery? Submitted in partial fulfilment of the requirements of a Master’s Degree (MSoc) in Finance MARY B. BEHAN Dublin Business School January 2015 1 Is a lack of action by the Domestic Irish Banks hindering Ireland’s Economic Recovery? Author: Mary B. Behan Student Number: 1742122 Supervisor: Michael Kealy Dublin Business School January 2015 2 Declaration I declare that all of the work in this dissertation, except where referenced, is entirely my own. Those referenced are listed in the bibliography section at the end of this paper. Furthermore, this work or no part of this work has been submitted for assessment to this or any other intuition. Signed: ________________________ Date: ___________________________ 3 Table of Contents IS A LACK OF ACTION BY THE DOMESTIC IRISH BANKS HINDERING IRELAND’S ECONOMIC RECOVERY? ......... 1 DECLARATION .................................................................................................................................................... 3 TABLE OF CONTENTS ......................................................................................................................................... 4 ACKNOWLEDGEMENTS ...................................................................................................................................... 8 ABSTRACT .......................................................................................................................................................... 9 CHAPTER 1: INTRODUCTION ........................................................................................................................... 10 INTRODUCTION ...................................................................................................................................................... 10 1.2 RATIONALE FOR THE RESEARCH ................................................................................................................... 10 1.3 AIM AND OBJECTIVES ................................................................................................................................ 11 1.4 RESEARCH QUESTIONS .............................................................................................................................. 12 1.5 APPROACHES TO THE RESEARCH .................................................................................................................. 12 1.6 SCOPE & ORGANISATION OF THE DISSERTATION ............................................................................................. 13 1.7 LIMITATIONS OF THE RESEARCH ................................................................................................................... 13 CHAPTER 2: LITERATURE REVIEW .................................................................................................................. 15 2.1 INTRODUCTION ........................................................................................................................................ 15 2.2 THE SEEDS THAT GAVE RISE TO IRELAND’S PROPERTY BUBBLE ............................................................................ 16 2.3 RECKLESS BANK LENDING PRACTICES & THE STATES RESPONSE .......................................................................... 18 2.4 THE BANK GUARANTEE ............................................................................................................................. 20 2.5 NAMA IRELAND’S BAD BANK .................................................................................................................... 21 2.6 CODE OF CONDUCT ON MORTGAGE ARREARS IRELAND’S RESPONSE TO FORBEARANCE PRACTICES ........................... 23 4 2.7 OVER INDEBTEDNESS & ADOPTING PERSONAL INSOLVENCY .............................................................................. 29 2.8 SMALL TO MEDIUM ENTERPRISES (SMES) .................................................................................................... 30 2.9 ECB LOW INTEREST RATES A FORM OF QUANTITATIVE EASING .......................................................................... 34 2.10 STRESS TESTING ....................................................................................................................................... 35 2.11 DIVERSIFICATION WITHIN THE CHANNELS OF FUNDING ..................................................................................... 36 CHAPTER 3: RESEARCH METHODOLOGY ........................................................................................................ 38 INTRODUCTION ...................................................................................................................................................... 38 3.2 RESEARCH ............................................................................................................................................... 38 3.3 RESEARCH METHODOLOGY ........................................................................................................................ 39 3.4 RESEARCH PHILOSOPHIES ........................................................................................................................... 40 3.5 RESEARCH APPROACHES - DEDUCTIVE AND INDUCTIVE THEORIES ....................................................................... 41 3.6 RESEARCH STRATEGY & DESIGN .................................................................................................................. 42 3. 7 DATA COLLECTION METHOD CHOICES .......................................................................................................... 43 3. 8 RESEARCH TIME HORIZONS ........................................................................................................................ 44 3.9 DATA COLLECTION AND ANALYSIS ................................................................................................................ 44 3.10 ETHICAL ISSUES IN DATA COLLECTION ............................................................................................................ 46 3. 11 LIMITATIONS ........................................................................................................................................... 47 CHAPTER 4: DATA ANALYSIS & FINDINGS ...................................................................................................... 49 INTRODUCTION ...................................................................................................................................................... 49 4.2 A FAILURE IN CONDUCT RISK GOVERNANCE .................................................................................................. 49 4.3 CCMA LENDER & BORROWER RELATIONSHIP - PRO CUSTOMER OR PRO PRUDENTIAL? .......................................... 50 4.4 AN IMBALANCE OF POWER - SUSTAINABILITY OF REPAYMENT WHO DETERMINES? ................................................. 51 5 4.5 AUSTERITY IRELAND AND PERSONAL INSOLVENCY DEBT ................................................................................... 53 4.6 DECISIONS ON SME CREDIT LINES ............................................................................................................... 54 4.7 STIMULATING THE ECONOMY ...................................................................................................................... 56 4.8 PRIMARY RESIDENTIAL AND SME NON-FIXED INTEREST RATE RESTRUCTURES ........................................................ 56 4.9 BANKING DIVERSIFICATION REQUIRED WITHIN THE CREDIT CHANNELS ................................................................. 57 4.10 THE INTERCONNECTION BETWEEN FINANCIAL ARREARS CRISIS AND MACRO-ECONOMICS ......................................... 58 CHAPTER 5: CONCLUSION & RECOMMENDATIONS ....................................................................................... 60 INTRODUCTION ...................................................................................................................................................... 60 5.2 RESEARCH QUESTIONS ...................................................................................................................................... 61 5.4 RECOMMENDATIONS OF THIS RESEARCH ....................................................................................................... 66 BIBLIOGRAPHY ................................................................................................................................................. 69 APPENDIXES ..................................................................................................................................................... 80 APPENDIX 1: SELF REFLECTION ON LEARNING & SKILLS DEVELOPMENT ........................................................................... 81 APPENDIX 2 .......................................................................................................................................................... 88 SURVEY QUESTIONNAIRE ........................................................................................................................................ 88 APPENDIX 3 .......................................................................................................................................................... 98 APPENDIX 4 ........................................................................................................................................................ 103 APPENDIX 5 .......................................................................................................................................................