Professor Gregory Connor:

The first thing is to determine solvency. So, we need to value the assets of the bank and make sure they are larger than the non-equity liabilities. There is an equity, which is the residual liability or the buffer of the bank. That is just a residual claim which has to be positive. When that is negative, the bank is insolvent. If one takes the value of the assets and subtracts the value of the liabilities - claims from debt holders, deposits and savers - and gets a negative number, then the bank is insolvent. That is essentially the exercise.

The hard part is valuing the long-term assets of the bank. It has to look at these projects, which in the case of Ireland were mortgages and property development projects, and decide how many of these are not going to pay the bank back. That was the problem. It was difficult. The banks were also in the year-long habit of overstating their solvency because they had been trying to refund themselves, roll over their funding. They had got into a bad habit of embellishing the quality of their books.