Mr. David McWilliams:

He asked whether nationalisation of one of the smaller banks could work. I said that it could but that it would not stop a bank run. We must be very clear about what we were trying to do. We were trying to prevent a national run on the banking system. What signal does it send by nationalising a small bank? It sends a signal that the bank is problematic. In a panic, does it say that people should not worry and that the rest of them are fine, or does it make a depositor wonder what will happen if one bank has been nationalised and is about to go under? I informed Brian Lenihan that exactly this tactic was taken by the IMF in 1998 in Asia. There was a crisis in Thailand with the baht, followed by crises in Malaysia and then Indonesia. The IMF came in and said the countries should nationalise the bad banks, which they did. People thought that this was the organisation that did not see anything coming and was now telling us that it was limited to a certain bank. It created an accelerated bank run.

The second thing is that by nationalising a bank in the middle of a crisis, we take on all of the liabilities so we do not give ourselves the temporary idea to find the facts. This involves crystallising losses today.