Professor Patrick Honohan:

There was an article in the newspaper this morning by Colum Kenny, professor in DCU, asking exactly this question, namely, "Where did the money go?" We have had some shots at doing this. It comes up with a very big number. I do not have it to hand.

At a conference in the ESRI a few months ago, I gave a lecture and presented some slides on this matter. It is quite interesting. One has to compare what happened with an alternative. What is the counter-factual? The counter-factual I would suggest - a good counter-factual, if one thinks about this - is: had there been a very strict regulatory environment which inhibited the banks from doing all that lending in 2004, 2006, and so forth, how would it have panned out? Of course, the economy would have been hit by the post-Lehman's international crisis and so forth. One has to try to model that counter-factual and with a colleague, Thomas Conefrey, we tried to work out how the economy would have moved. That is one thing, and it gives an overall number.

However, also, and very often neglected in this, there are distributional effects and that is what we have been focusing on a lot - the paying for the banking crisis. There are capital gains and losses as well as the different economic effect. The economy would have been weaker during the early 2000s. Wages would have been lower, there would have been fewer jobs, there would have been less immigration, there would have been fewer houses and so forth. In the post-crisis situation, we would have been in a higher position. So there is balancing gains from losses and then there are the distributional effects - the winners and losers. The winners were people who sold property at a good time. The losers were the people who bought property at a wrong time, the Government, the shareholders and the poor subordinated debt holders of the banks who would actually have got their money back in full instead of with a big haircut. So, it is a big story and very interesting.