Professor Gregory Connor:

During the 12 or 13 month period up to the end of September 2008, they had a lot of trouble rolling over their funding. They had gotten into the habit of embellishing how good their accounts really were and how solvent they were. That is a natural activity for the banks. I know there are records of discussions in the banks from the capital desks.

The capital desks have to be recorded for regulatory purposes. If one listens to the recorded discussions on the capital desks, some of the bankers knew they were insolvent and they knew they were hiding that insolvency so it is clear that they knew they were solvent. The banks either knew they were insolvent or someone in the bank knew they were taking on too much risk or they had too much concentration in property or they were borrowing too much through very volatile funding sources. The interbank borrowing market is quite volatile. It is normally used just to manage short-term liquidity needs; it is not normally treated as a source of long-term funding. It is for short-term management so they knew they were using volatile sources of funding, they had too concentrated a loan book and property prices had gone up too much. I suspect many bankers knew what was going on in that sense.