Mr. Matthew Elderfield:

I think I have said in public on a couple of occasions that the figure will be approximately €5 billion or €6 billion. The banks have a great deal of capital right now and they have a slight hill ahead of them.

What other factors are in the mix? In the first instance, we know there are more losses to come in the banks. The questions which arise relate to whether there will be enough money in the pots they have put aside to cover these and how quickly those losses are going to come due. We will carry out an analysis in this regard in the next set of stress tests. We will bring BlackRock in again to obtain an independent, market-recognised approach. There are some positives, some negatives and some uncertainties in respect of this matter.

On the positive side, the arrears levels are still inside the stress test levels. This was shown up in the most recent stress tests, which is a positive. House prices have stabilised. In addition, there are the asset disposals which the banks have been required to do. The banks have many non-core assets and we informed them that they had to slim down their operations and reduce their loan-to-deposit ratios. They have managed to sell those assets without crystallising as big a loss as we feared when we carried out the stress tests. Those are all the positives. On the negative side, arrears continue to rise bit by bit and the domestic economy - rather than that which relates to exports - remains weak. The big unknown relates to the impact the insolvency framework will have. At some point we will consider all of these points and try to envisage what is going to be the outlook. I am not going to make a pre-emptive guess today. We will do that when the time comes. That is the first factor.

The second factor revolves around how we are going to apply stress tests in respect of all the aspects I have mentioned. How tough a test should be applied? Do we really want to pile stress upon stress? How far do we want to twist the dial when it comes to stress testing? The ECB and the European Union, as part of the single supervisor, are going to make the decision in this regard. The questions which arise relate to how quickly loan losses are going to pan out and how tough should be the stress tests.

The third factor involved is profitability and how fast the banks are going to accrue profits. The capital they have now is going to erode over time and we must ask how quickly they are going to realise profits to replace the capital they will lose. The position of the banks in the context of profitability and their net interest margins have not been strong. There are some early signs of improvement but there is still some way to go. Again, we will have to assess the position in this regard and include it in the mix.

The final issue which arises is somewhat political in nature and is, quite frankly, somewhat above my pay grade. If, hypothetically, there was a shortfall in another country, we must consider when this should be dealt with and who should have responsibility for dealing with it. As stated, the banks currently have a great deal of capital. We must ask whether, in the context of a stress which has been identified in the middle distance, we should immediately invest more capital in the banks. It is not strictly necessary to do so because there is already a buffer in place. This brings us to the issues of debt, the banking system and the sovereign and the banking union. The Government's policy - which I think is the right one - is to say that European Union instruments such as the European Stability Mechanism, ESM, should be used to provide for direct recapitalisation. All of the elements to which I refer are going to have to be considered in the context of how quickly it will be necessary to phase in Basel III, the speed at which capital will be eroded by loan losses and other, different scenarios, the severity of stress, the level of bank profitability and what is happening in Europe in the context of the ESM. Decisions will have to be taken and judgments will have to be made around these in the fourth quarter of this year, the first quarter of next year and over time. That will lead to a decision being made on whether there is a shortfall. As previously stated, I will not pre-empt the position and make a guess now. However, I have outlined the process and the factors involved.