Mr. Fergus Murphy:

Okay, it's a very good question and if I could take a few minutes, Senator, thank you, to answer that one. I think the commencement of the crisis, ultimately, had its origins in the international landscape. What was happening globally ... and I'll probably simplify the illustration just to keep it as tight as I can, but ... and it's often talked about in the context of the US and China, but it's not just the US and China, it's the East and the West, but I'll just talk about the US and China for a moment. We were in a long boom, it was thought, that could be a 30-year boom, because of the improvements in technology and the productivity of the western world. The US was importing a huge amount of Chinese goods. Okay, it's not just China and the US, but, as I say, just take that example. They were paying for those goods in dollars. They were very large consumers. The Chinese took those dollars and they churned them back into the western world, for example, buying significant amounts of US treasuries. One country had a deficit, one country had a surplus; one country was an importer, one country was an exporter. And there was a virtuous symbiotic relationship between the East and the West in terms ... and I use, again, the US and China, maybe unfairly, just as the best example, where deficits in the West were being funded by, often, moneys coming in from the East.

Now, Ireland then was a little beta stock and, literally, at the epicentre of this either geographically or economically, and when I say a beta stock, I mean, you know, a stock or a country that moves disproportionately up or down to a certain event. We had had an enterprise economy and a virtuous economy up to 2003. Then we started, obviously, investing too much in property and property became a too large contributor to our GDP. We were buying and selling property to each other and thinking we were adding real value. So when this influx of liquidity across the world churning around was taking place we received, and our financial institutions received, more of that liquidity than we should have and it meant that Irish banks were able to go to the wholesale markets in a way that they never were before. For example, in 1998, the EBS balance sheet was 100% funded by retail deposits. When I took over in 2008, it was 26% funded by retail deposits. So what had happened in the interim was the effect of what I was just describing.

So you have this ... you had both push and pull factors. You had this global activity taking place, which meant that, for example, in the US, because there was so much liquidity, banks were able, and financial institutions and asset managers, in general, to structure poorly put together assets, because there was so much liquidity sloshing around and investors wanting to invest that liquidity, that they wanted some kind of a yield. So you had the formation of the sub-prime crisis in the US, with badly-structured assets soaking in the liquidity. Similarly in Ireland, the liquidity got soaked into the property marketplace in a similar way as it did in the US in the sub-prime mortgage marketplace. And so, a combination of the two yielded, unfortunately, the environment that we entered into and the shock and cliff-like environment that took place soon thereafter. But, in my view, the origins of the crisis was the global activity. We were badly prepared and badly set up for it, because of what happened in Ireland and the policies and practices, the way the banks had been run, the way, probably, the economy had been run. But the origin was the international piece, and then we were a beta stock, if I could use that analogy. When economists and experts were looking around the world for the likely red hotspots in terms of where this might happen first and what the effect could be, we did, unfortunately, stand out like a sore thumb.