Mr. Alan Merriman:

Thank you, Chairman. I very much appreciate the opportunity of being here today. Rather than repeating my witness statement verbatim, in the interest of time I plan to give a brief introduction to my responsibilities and time with EBS, explain why I believe EBS was more of a casualty rather than a cause of this crisis and briefly comment on a number of very select topics which I guess would be of particular interest to the committee.

I joined EBS in the summer of 2005 as finance director. Prior to this I had been with PwC for a little over 17 years.

I was on the audit and advisory team of the firm and I was the partner responsible for leading the firm's banking, audit and advisory practice. I was privileged to have practically all the Irish banks amongst my client base, including the Central Bank of Ireland and Bank of Ireland. I was very happy in PwC. Nevertheless, having been courted by EBS, I was eventually convinced to leave, attracted by the opportunity of testing myself in industry and by the wider challenge of ongoing professionalisation of the society and, of course, championing mutuality.

I ultimately ended up spending only a little over three and a half years with EBS and yet this very short period crossed both the tail-end of a long boom period that this country had enjoyed and the beginnings of what I would describe as two devastating crashes: the first being the global liquidity crisis which triggered the second, being our own catastrophic banking and property market crash. During the short, three and a half year period, I served under and diligently worked alongside, in very challenging circumstances, three different chief executives. I was given a wider role than might be considered the norm for a traditional finance director and, broadly speaking, this role might be best characterised as, in effect, being more like that of a COO, a chief operating officer. For instance, finance, treasury, commercial lending, operations, IT, internal audit, investor relations and risk, amongst others, all came under my areas of responsibility. I would emphasise that each of these important areas had their own head of finance, head of function - all well very well qualified and experienced in their subject matter fields and clearly responsible for the day-to-day runnings of their functions and/or departments. I had a very loyal, hard-working and talented team and strong support throughout this period from both our head office and the network, which I was, and continue to be, very grateful for.

As you may know, I stepped down - and reluctantly so - in early 2009. This was voluntary, in that I agreed that, as a mutual, it was important to show accountability to our members and other stakeholders for what had transpired in EBS and, in addition to the chairman resigning, I was the obvious choice at executive level to accompany him at that time. Similar to others, I would have preferred to have stayed and helped but we felt that, on balance, the right thing was that I should exit along with the chairman.

Let me emphasise that EBS was different. I think it's a very, very important point to acknowledge. It was a member-owned, non-profit organisation. It was the last remaining true building society in Ireland. It was established for teachers, was strongly supported amongst the public sector - guards and nurses, amongst others - and its people, whether at branch level or at head office, root and branch had a DNA and a culture of being community based and member focused. It was not focused on profit. It was about people, it was about trying to serve members better through superior service, real trust and competitive pricing compared to the banks, and to be relevant. It was a very democratic organisation, with a diverse board and true member representation. It was an alternative to the commercially-driven banks. It had a good culture and spirit, but neither was it perfect. The fact pattern, whether it was well understood or not, EBS was fighting for survival and relevance, not only in 2009 or 2010 but also back in 2005 and, indeed, before that. Had it not competed in the market, EBS, as Ireland's last true building society, would have ended up gone like the 20 other building societies that this country once had.

Running down the balance sheet realistically was not an alternative, so EBS continued doing what the board collectively thought best to preserve mutuality. This meant defending its natural mortgage market share and growing its non-member businesses to aid the member business. This strategy of running both a member and a non-member business in parallel had been successfully deployed by others in the UK and various international studies have shown that having a mutual is good for the market as a whole. However, as we all know now, regardless, the society was lost.

Let me comment on some specific matters that I think would be of particular interest to the committee. Risk appetite: I want to bring some clarity on this topic and, in particular, commercial property and development lending by EBS. Quite a number of commentators have questioned why a building society would be in those markets at all.

Firstly, just to emphasise that my understanding is that the building society legislation was explicitly changed to allow for this. The Oireachtas must have felt it appropriate and justified and it was against this backdrop that EBS first entered commercial lending in 1991, and not, I might emphasise, 2005. And I note that as part of its then approved board strategy, EBS embarked on development lending as a sub-strategy of commercial lending business in 2001 and, again, I would emphasise, not in 2005. The commercial business was circa €1.5 billion and the development lending book was circa €100 million by the time I joined in July 2005. From the information I've been able to glean in preparation for today, the development lending book, which was built up to circa €500 million by the end of 2008, gave rise to about €300 million of crystalised losses. For clarity of understanding, I'd like to highlight that whilst undoubtedly the development finance losses were shocking and a very severe blow to EBS, they did not bring about its demise. Rather, the facts clearly show that given the magnitude of the total capital ultimately needed for EBS, which was a multiple of this number, clearly a multitude of factors - which evolved over a very considerable length of time - lead to its business model failure and not just development and/or commercial lending. And I'll be happy to elaborate on this in questioning.

Whilst of little comfort, I would also note that risk management and best practices always evolve. And whilst EBS made mistakes - and, for example, the controls we put in place such as the 3% cap on development finance, were inadequate - by late 2007 and early 2008 we were actually ahead of the curve and this is evident by firstly two clear facts: we were the first to exit these businesses; and, secondly, our loan-loss provisioning at the end of 2008 was more realistic than the banks'. During my time with EBS, capital funding and liquidity were always key agenda items for the EBS board and the risk committees. There was good MIS and intelligence continuously available and there was definitely a sophistication and a depth in the society management team of these critical areas. For a small financial institution, we had the benefit of both a head of treasury and a head of capital markets, both with deep treasury experience, who, alongside risk, finance and strategy personnel, also had a strong appreciation of these important pillars of banking. Actions were taken continuously by the board of management to mitigate these risks, including widening and lengthening our funding programmes, improving our collateral position markedly over this period, investing in the infrastructure necessary to establish our covered bond bank - which, amongst other things, brought further emergency liquidity protection - and raising of PIBS, permanent interest-bearing shares, to improve capital ratios and lost absorption, etc. However, in truth, these were remedies which created breathing space for the status quoto be maintained, rather than being sufficiently, materially corrective. Consequently, when the crisis did arrive, EBS was, whilst relatively better placed than others, still poorly positioned to withstand the overwhelming stresses it brought.

In wrapping up, let me say a couple of things. Many hard-working people and families all over Ireland, through no fault of their own, were just trying to get on with normal life and do the right thing. They continue to suffer today from this global financial crisis. In truth, for them, certainly in the wrong place at the wrong time. This, in my view, arose in particular because of how, in Ireland, the property and banking market was allowed evolve here. And hindsight clearly shows us that Ireland's comparably greater systemic vulnerability in this disaster evolved unchecked by those who ought to have been able to genuinely make a difference or at least provide some meaningful shelter. EBS is not without fault but the hard truth, if you want my considered insight, is that successive Governments and the authorities, local and European, have much to answer for and more so than EBS. EBS was different - it was very much more of a casualty of this one-in-100-year crash than a cause. As the only real building society we had left, it fought a good fight. Yes, it failed but not for the want of trying. It was definitely not a root cause of this crisis locally, never mind internationally. Of course it made mistakes and we had failings and these are regretted. But EBS was essentially a small fish in a big pond in an even bigger world, where we were takers and not makers of how banking funding worked.

Within that system, EBS was trying to make a positive difference. It didn't give up on mutuality. Maybe that was a mistake; maybe it wasn't. I hope this somewhat panoramic and very personal perspective is of help, Chairman, and I'm happy to take questions.