Professor Patrick Honohan:

I think the banks were taken by surprise. This was largely because when they examined big loans they thought, for example, that a loan-to-value ratio of 80% would be all right. They felt they had the personal security and failed to look beyond that. What happened when this loan-to-value ratio was on a property for which the price fell by 40% to today's prices? The ratio became completely different. They had not thought through this. They were in a different world, whereby they were effectively participating in property speculation. They were not doing old fashioned banking, according to which they would take no risks, hold onto security beyond the value of the loan and charge a nice premium for doing so. That is the old style of banking but they had moved into a different sphere completely without changing their thinking. I think they were surprised. We know from the various Anglo Irish Bank tapes and so on that the bank knew it was running out of cash. Everyone knew that the cash was running out. During the summer they were probably starting to think that the market did not believe in their business model. They were hawking it around and nobody believed in them. They were starting to have doubts as to the long-term future of the bank. In respect to whether they knew they would burn through €40 billion or €45 billion of their shareholders' capital, there was no evidence that they did. In fairness, however, I have not spoken to any of the Anglo Irish Bank people.