Mr. Fergus Murphy:

Thank you Chairman and thank you committee. I would like to say that I'm happy to be here today to answer your questions and hopefully give you my personal perspective, as someone who came back to Ireland from abroad in 2007, commencing in EBS in 2008 and spent four years leading and making the changes necessary to enable EBS to get through the crisis. Chairman, I've submitted a detailed written statement, but if convenient, I'll just take a few minutes now to make some opening remarks. By way of background, I've spent most of my career in international or European banks, including 14 and a half years in Rabobank, working in a variety of roles in treasury and capital markets, corporate banking, general management etc., including head of global treasury for Rabobank International across 44 countries and CEO of Rabobank in Asia. Prior to working for Rabobank, I worked for BNP Paribas for five years and before that, the KBC bank, the Belgian bank. I became CEO of EBS on 14 January 2008, joining the board in February 2008. I'm currently director of corporate and institutional banking at AIB, having held a number of roles on the leadership team and the executive committee of AIB over the last four years, including director of transformation and group services, which is the portfolio responsible for the majority of change management and the restructuring of the group.

On taking up the role in EBS in 2008, I was highly conscious of the sub-prime crisis in the US, as I'd spent some time there in late 2007 in a role that allowed me to view the property industry closely and had developed a growing sense of the challenges confronting that industry in the US. I also, through my Rabobank experience, had a strong recall of the property correction that took place in the Netherlands in the early noughties, when property prices reduced by about 20% causing some stress in the economy. My view at the time, as an interested observer, was that there certainly were challenges ahead in the Irish economy, as it had grown so strongly in the prior decade. Property prices had risen substantially and it was noticeable on coming home how much prices had increased generally. My view at the time was that property prices in Ireland needed to, and probably would correct by about 20%. Something similar to the Dutch experience which, although a difficult correction in their economy, had been manageable. So my sense of the challenges ahead did not drown out my overall positivity, indeed my pride at taking over at the helm of a financial institution in my home country, an organisation with a strong heritage and tradition in Ireland that, like Rabobank, which I'd worked in for so long, was a member organisation. The mutual model in UK and Ireland is very similar to the co-operative banking model in continental Europe both owned by the membership and in existence to serve the membership base. EBS had been a positive force in Irish banking and financial services for decades since its foundation by Alex McCabe and a small group of teachers and trade unionists working together to help each other to buy their family homes in ... from 1935 and I was looking forward to the challenge of leading it through the upcoming challenging period and contributing to its continued modernisation and ultimate growth.

I understood at the time that one of the reasons I'd been selected to lead EBS was my international background, outside of Ireland banking experience and my capital markets experience. I had been deeply involved in a number of financial crises around the world. For example, I was in Indonesia in 1997 during the worst of the financial crisis in Asia leading a triage team to stabilise the Rabobank balance sheet in Indonesia. That was just shortly before the collapse of the Suharto regime. The EBS chairman, who himself had only taken up the role recently at the time I joined, was a modernising and progressive force and he had been ... he had given me a mandate to bring the organisation forward, look at the operating model and structure in order to create the best possible future for the organisation and its membership. As part of my own due diligence before joining, I did query the EBS exposure to commercial real estate and land and development sectors and was given comfort that although there were some challenges, overall the book was in okay condition.

However, only weeks into my tenure, there were external and internal signs of stress in the local markets. Linking some up ... linking up some of the dots, in terms of my recent and past experience, I commenced a programme of retrenchment and risk containment, which unfortunately would be the dominant activity carried out in EBS during my tenure. For example, I reversed existing plans to create a commercial property subsidiary to enable the growth and the potentially separate funding of the commercial property business, which had envisaged growing the book by circa 50% to 100%, depending upon future market conditions and opportunities. I also initiated a withdrawal from land and development lending within four months of taking office and a withdrawal from commercial property lending within six months of taking office. I addressed the funding and liquidity challenges by accelerating plans to create a covered bond bank, which is a very important structure to enable term funding in the debt capital markets by banks and building societies. We commenced a further balancing of the funding structure and profile of this society by putting a huge focus on the growth of retail deposits. EBS actually grew its retail deposits by circa €2 billion through the crisis, a notable feat when compared with the exodus of retail deposits from other institutions during this period. This particular action helped to stabilise the society and along with the actions on exiting commercial property and land and development finance and other actions, lessened the ultimate amount of capital that the organisation eventually required. I would estimate conservatively that the risk containment activities of that first month period ... first six-month period, resulted in at least €750 million of capital savings for EBS. I reviewed the basic management operating model of the society, which unfortunately wasn't fit for purpose, and I followed up by making essential changes to ensure better governance and separation of duties. For example, there had been no independent CRO function and the risk function reported to the finance director.

Within three months of me joining EBS, Bear Stearns went bust. Within six and a half months of me joining, Lehman's went bust and about a week later, the Irish Government guarantee came in to place. I learned of the CIFS legislation from a quick phone call with my chairman early on the morning of 30 September. Neither I nor EBS had any involvement in the deliberations in the period prior to this on potential guarantees or actions. And I was a little surprised by the decision, when I read about it that morning. EBS had lost some institutional and international funds and deposits and we were concerned with developments but we were certainly not in a fraught position. After the guarantee date, as it is well documented, the Irish economy, property prices and the international backdrop continued to decline through the back-end of 2008 and all of 2009. It was more than apparent that the legacy of the '03-'07 period, whereby EBS, like many other institutions, had built up an unsustainable position in commercial property and land and development finance, a large buy-to-let exposure and built a liability structure that proved fragile, was having a profound effect. However, it is interesting to note that in early 2010, the international backdrop started to improve and it was felt that after PCAR 2010, the worst was over and international markets were recovering. Most Irish commentators, including the Governor of the Central Bank and the Minister for Finance, publicly observed that the worst of the crisis was over, something I was also positive about. However, the commencement of the Greek crisis put paid to that and Ireland found itself again at the centre of a rapidly deteriorating international and local environment. Those days were extremely challenging, as liquidity, credit quality, capital adequacy and economic confidence continued to decline, leading to the troika bailout.

I ensured we at EBS worked cohesively with all Government and other stakeholders to stabilise the system and EBS. I approached every meeting with the starting point that whatever was best for the sovereign was probably the best for EBS, acknowledging that EBS, although an important financial institution with a strong market share in a number of areas and a brand that was less damaged than most financial institutions, was not systemically important in the same way as AIB or Bank of Ireland and that therefore, the solution for EBS may be different to the solution for one of the pillar banks.

As CEO, I was going to ensure that the mindset in EBS was open to any practical solution or proposal, including demutualisation, takeover of the society, etc. It was easier for me to have that frame of mind, in that I could be objective on past performance and strategy, in that I wasn't part of it.

Throughout the period, I continued to lead significant improvements in governance and operational controls in EBS, continued to lend sensibly into the residential housing marketplace and improved ... and more conservatively lent and, as mentioned earlier, grew the deposit base. A quick example of the sensible and risk-focused approach is reflected in the volume of residential lending conducted in my time in EBS. This lending was covered 1.7 times by retail deposits, ensuring a secure and locked down conservative approach. Throughout the crisis, I estimate that I spent about 60% of my time on strategic work around working out the long-term future of EBS, onshore merger-takeover, offshore merger-takeover, demutualisation, privatisation, acquisition by private equity etc. We worked on a number of parallel projects all at the one time. All of this worked culminated with a preferred bidder being selected in February 2012 after 11 months of detailed due diligence and engagement. This transaction was terminated on 28 March 2011 and EBS was informed that it was being merged into AIB on 30 March 2011. The success of that merger is, I think, evident in the positive restructuring, stabilisation and return to profitability of the enlarged group over the last four years.

I believe the Irish banks are well on the road to a full recovery. Huge lessons have been learnt within the banking sector and within the regulatory system. Indeed, lessons have been learnt right across the economic and political landscape. I hope my testimony today can add additional insight into your understanding of the crisis, Chairman.