Dr. Donal Donovan:

This is quite important. Yes, the option was to discard the hypothesis that no bank should fail and to allow Anglo Irish Bank to fail - a disorderly liquidation. Of course, nobody knew or believed that Anglo Irish Bank's situation was as bad as it turned out to be at the time. There would have been no particular reason, therefore, to have allowed Anglo Irish Bank to fail because by definition and by assumption it was only facing a liquidity problem. Why would we have closed the door? I believe that the costs if, for whatever reason, Anglo Irish Bank had been liquidated would have been very substantial. I do not want to waste time repeating this but the Honohan report on pages 131 and 132 paints a very striking picture of the huge economic and social costs and disruption if there had been a disorderly closure of Anglo Irish Bank that night or the following morning, both directly and internationally and for other banks and so on.

Who knows what those costs would have been or how big they would have been. I think the case is made, however, and I would make the statement, based on my own experiences with other countries where there have been bank runs and disorderly bank failures, that the costs would have been substantial and they could not have been minimised. Whether they would have been as great as the cost of the €30 billion or €40 billion associated with the bank guarantee is, of course, something that only history can tell. Faced with the possibility of the collapse of Anglo Irish Bank that night if nothing were done, I do not think allowing Anglo Irish Bank to have collapsed would have been the right thing to do and I think it is unlikely that any government would have done that. Many academics and commentators have subsequently suggested what the Government should have done. In my view, people who lead a Government have to be risk averse. They cannot try various courses of action. If it does not work, the academics will be okay, but if one is the leader of a country that is in the middle of a crisis, one has to do things that will not lead to a catastrophe the following morning.