Mr. Paul Gallagher:

Thank you. Chairman and members of the committee, I am here to assist the committee in any way I can and to address any questions which the committee may have. The committee will be aware that as Attorney General, under Article 30 of the Constitution, my role was to advise the Government in matters of law and legal opinion and it may be helpful to the committee to know that prior to my appearance here today, I have spent some considerable time in preparing for the appearance and I have also reviewed the core documents which the committee has furnished to me. I don't intend reading my statement, which I prepared for the assistance of the committee unless of course the committee would like me to do so, it's admitted into evidence and the committee have it. There are, however, a number of matters which I mention in the statement and which, with the committee's permission, I would like to mention before commencing my evidence.

I served as Attorney General between June 2007 and March 2011.

During two and a half of those years, Ireland experienced an unprecedented financial and economic crisis. And one of the defining features of that crisis - and, of course, there were many - was that Ireland truly stood alone throughout that period. It had the sympathy and goodwill of other countries but, ultimately, it had to rely on its own resources to find its own solutions to the crisis. And I think that may be an obvious point but, I think, it is frequently overlooked and it is an important lesson of the crisis. My abiding memory, at critical times during those years, is the sense of Ireland's isolation. Much was expected of Ireland. It was required to save its banks and it was required to use its own resources to do so. Ireland had to make its own decisions and to do the best it could it the circumstances. On the night of the decision to avail of the bailout - the Cabinet meeting of 20 November 2010 - it was very apparent that Ireland, again, was very much on its own. Ireland's isolation was encapsulated in President Trichet's letter of 19 November and in Minister Lenihan's journey to Brussels on 21 November.

So far as the guarantee is concerned in the events of that night, I address that in my statement. Subsequent to the night of the guarantee, the Credit Institutions (Financial Support) Act 2008 - referred to as CIFS - which was initiated in the Houses of the Oireachtas on 30 September, was enacted by 2 October and this legislation empowered the Minister to provide the guarantee. The proposed guarantee scheme was notified to the European Commission in accordance with Ireland's state aid obligations under the EC treaty and the European Commission approved the guarantee, as being necessary to remedy a serious economic disturbance in Ireland, on 13 October 2008. On 15 October 2008 the guarantee scheme was published by the Government and it was formally approved by the Houses of the Oireachtas on 17 October. On 20 October it was introduced by way of statutory instrument and that set out the terms and conditions on which the participating institutions could benefit from the guarantee. On 29 October the Minister, by statutory instrument, specified the banks covered by the guarantee scheme. And the Act, and the statutory instruments made thereunder, provided the legal basis for the guarantee. On 8 December 2009 the eligible liabilities guarantee scheme was introduced, having been approved by the Oireachtas. This refined the instruments that were covered by the guarantee, it ... guarantee no longer covered asset-backed securities or dated subordinated debt. The ELG scheme was extended in 2010, 2011, and 2012, until 20 December 2013. It ended on 28 March 2013 for any new liabilities but, as I say, continued to cover liabilities until 30 December 2013. Any new liabilities, as and from December 2009, were covered under this eligible guarantee scheme rather than the earlier CIF scheme - that continued in existence to continue the guarantee in respect of instruments that were issued prior to the coming into force of the eligible guarantee ... liabilities guarantee scheme.

As I comment in my statement, I believe it may be of interest to the committee to note the response of other countries and the European institutions to the crisis as I think it provides both a legal context and an understanding of some of the difficulties which arose. I don't believe this has been addressed by any other witness in any detail - but I may be incorrect - but there were very significant developments, particularly at a European level, subsequent to October 2008, and the committee may consider those relevant to its inquiry, and, in particular, relevant to the issue which it has to consider as to the relevant structures and measures that might assist in avoiding a recurrence of a crisis of this nature.

In my statement to the committee I also touch on the fact that the European legal architecture, which was provided for in the Maastricht treaty and which set up the European Monetary Union, was significantly lacking in important respects. Control of money matters and, in particular, money supply rested with the ECB. However, the legal responsibility for each member state's financial system rested with that state. Interest rates were set by the ECB having regard to the overall situation in Europe and not by reference to the individual situation of any member state. The ECB, in discharging its function, was always very concerned and of course rightly concerned of its legal obligations and legal constraints and, in particular, to have a necessary legal base for its actions. Each state, however, was at the time individually in control of, and responsible for, its banking system. What is called supervision and resolution was the exclusive responsibility of member states and that position did not alter until 2013 when the ECB adopted a role provided for in Article 127 of the treaty, that is, the role of supervision of financial institutions. Article 127 empowered the ECB to contribute to the prudential supervision of financial institutions and the stability of the financial system and the delay in the introduction of this supervision and supervisory regime is partly explained by a concern on the part of many that combining monetary policy and supervision created unavoidable conflicts of interest.

It was not until 2014 that a single resolution mechanism and a single resolution fund was set up, and the delay there arose because of the concern of the lack of any explicit legal basis in the treaty for such a role. In between, the European Banking Authority was set up towards the end of 2010 and it was designed to increase the transparency of the financial system and also to identify weaknesses in banks' capital structures. And the European Systemic Risk Board was also set up in late 2010 and it had responsibility for the macro-surveillance of the financial sector in the EU. Perhaps of particular interest to the committee is the fact that it was not until 2014 that the banking recovery and resolution directive was introduced at a European level. The benefit of that directive is that it provided a sound legal footing for resolution actions which have very considerable and financial implications and which as a consequence can create uncertainties and systemic instability. An EU-wide structure for banking resolution provides an ex antestructure for dealing with troubled banks. This is important because it removes uncertainties and reduces the basis for legal challenge. Markets recognise and expect that these actions will be taken and that limits the contagion effects of actions that might be taken. And the introduction of that important measure, I think it's worth nothing, was six years after the commencement of the great recession. The recitals to that directive explicitly state and recognise that the financial crisis had shown that there was a significant lack of adequate tools at Union level to deal effectively with unsound or failing credit institutions. It says the financial crisis was of systemic dimensions in the sense that it affected areas ... or it affected access to funding of a large proportion of credit institutions. So that provides a very brief overview of the system as it was in 2008 and subsequently, and I am happy to address any questions if the committee thinks that that may be of help in its deliberations.

Before speaking on other topics, I wonder if I could be permitted by the committee because I think it is both important and fair to refer to it. And it's a matter I touch upon in my statement and that is the performance and commitment of the civil servants with whom I worked closely during the crisis. I think it is important because they are part of the institutions of the State and I think it's fair because so many of them worked so hard to find solutions to the crisis. In particular, I mentioned the people involved in the Department of Finance with whom I had much contact in relation to legal issues arising from the financial crisis and those people have given evidence, I think, before you, Chairman and members of the committee, and also the people in my own office, which includes the Chief State Solicitor's office. And coming from the private sector I had the opportunity, I suppose, of a look at their performance from a different perspective.

And I think it is important to say, in a context that was so difficult and created so many difficulties for everybody, that their performance was of an extremely high standard; that I never met people who wouldn't make decisions, who were afraid of making decisions, who said, "This isn't my job" and I didn't meet people who weren't prepared to do their very best for Ireland. And that was, for me, a remarkable feature and my abiding memory of my period in office.

As I understand the Government's waiver, Chairman and members of the committee, in relation to my evidence, it's been agreed, as you have said, that, having regard to the exceptional circumstances of the financial crisis and the very important mandate of the committee, that legal privilege should be waived, so far as my oral evidence goes, and that I am relieved from my professional duty to respect the confidentiality of the client which extends to confidential information entrusted to me by the client in the course of my ... in the discharge of my obligations and I'm also relieved from the obligation to protect legal privilege. That is subject to one qualification that you have identified and that relates to the continuing obligation not to prejudice any existing or anticipated litigation. Subject to that, my ... I just want to note that my written statement, as the committee will appreciate, respected the obligations of confidentiality and legal, professional privilege. I'm now released from those obligations in that way. I'm permitted to answer any question which the committee might like to pose to me and I will do so. Thank you very much, Chairman.