Professor Patrick Honohan:

Insolvency is a legal concept so we have to be careful about that. There are two concepts of insolvency known to law. The first is whether you can meet your payments as they fall due. As soon as they were not able to meet their payments as they fell due, they were insolvent in that sense but more important than that for banks is the other concept of insolvency, which is whether your assets are greater than your liabilities. It is very difficult to value assets and there are accounting rules for doing so. Normally they work reasonably well but when a bank gets into a situation which I describe in box 7.2 where the boom might go on but the bust might happen, there are two possibilities - a good possibility and a bad possibility and they are very far from each other. Accountants' valuations are no use in dealing with that so it is not a question of when they were insolvent but when regulatory action should have been taken to prevent them doing what they were doing. The answer is it should have been taken several years before that.