Mr. John Stanley Purcell:

Thank you, Chairman. I wish to begin by thanking the committee for inviting me to attend to give evidence at the inquiry. I also wanted to express my sincere regret to everyone who suffered as a result of the demise of INBS.

My role in INBS was very diverse and I was engaged in a wide variety of functions on a daily basis. Whilst I was heavily involved in reporting, treasury, retail deposits, IT systems and compliance, I was not involved in the lending function outside my role on the board.

Up to the crisis, INBS was successful. Profits increased year on year and the society grew accordingly. During the period leading up to the crash, much of the focus of the society and a huge amount of my time was taken up with demutualisation. The members hoped to gain a windfall profit from the demutualisation and sale of the society and the board worked extremely hard to put the apparatus in place for demutualisation. This involved the production, in 2007, by KPMG of a vendor's due diligence report which provided a detailed snapshot of INBS at that time. The report was provided to the Central Bank.

The strategy of the society, including demutualisation, developed over a long period of time. In terms of lending, as time progressed it became apparent that the residential market was overly competitive and margins were diminishing. Tracker mortgages, which INBS did not market, were commonplace. During the years 2004 to 2007, INBS, AIB, Anglo Irish, Bank of Ireland, Bank of Scotland, EBS, Permanent TSB and Ulster Bank lent heavily in the commercial-residential sectors. All of the institutions suffered extraordinary losses as a result of that lending. A combination of the availability of funding, low interest rates, increased competition, Government policy - including tax incentives for development - and rising property prices caused a surge in lending.

INBS's strategy was to increase lending in the UK. The UK property market did not collapse in the same way as the Irish market and the London market improved in the aftermath of the economic crisis. Over 50% of the loan book which transferred to NAMA related to assets outside Ireland. Consequently, I believe that the INBS assets transferred to NAMA were significantly undervalued.

INBS developed a strategy over time which involved lending to clients who had a proven track record.

Towards the end of 2007, it became clear that liquidity was tightening. The board decided to cease new lending in December 2007 when other institutions continued to lend anew, and this was the right strategy at that time.

By September 2008, INBS's liquidity was coming under pressure due to a credit rating downgrade and an inaccurate report on INBS by Reuters. The regulator arranged, at short notice, a meeting on Sunday, 7 September 2008 with AIB and BOI to discuss the possibility of the provision by AIB and BOI of a standby facility for INBS. INBS's liquidity on 7 September was about €3.5 billion and information was provided to the meeting at short notice on liquidity, funding liabilities and the maturity of funding liabilities. The meeting concluded without any agreement to progress the provision of a standby facility. Had the matter progressed, any additional information required not brought to the "at short notice meeting" would have been provided.

Towards the end of 2009, Ernst and Young began an investigation into legacy issues at INBS. I gave Ernst and Young every assistance required. The investigation ultimately led to the initiation of legal proceedings against the "old board" for the losses of the society. IBRC and INBS formally accepted in the pleadings in the proceedings that there was no dishonesty whatsoever on my part.

The proceedings represented an attempt by IBRC to make the directors personally liable for the losses of the society. A central plank of the claim was the allegation by the plaintiffs that the delegation of powers by the board of the society to Michael Fingleton was excessive. On legal advice, I joined the Central Bank to the proceedings as a third party because they had approved the delegation of powers to Mr. Fingleton.

Given the extraordinary magnitude of the claim - for up to €6 billion - I entered into a confidential settlement with the special liquidators after a mediation process. The terms of the settlement are confidential. I can say that the settlement involved no admission of liability on my part. I paid a sum personally to the plaintiffs for the benefit of the State.

Separately, the E and Y investigation led to administrative sanctions proceedings being initiated against me by the Central Bank as far back as 2011. A notice of inquiry was issued on 9 July 2015 and I would ask the committee to be cognisant of the fact that I am the subject of that inquiry, pursuant to which punitive sanctions could be imposed on me by the Central Bank. I really can’t understand how the Central Bank can purport to investigate me in relation to events for which they bear responsibility. That is the subject of legal proceedings.

I am not aware of any civil proceedings or any administrative sanctions having been initiated against the management of any other bank or building society as a result of the crash. I can't see how there is any benefit to the public in INBS being investigated and pursued on the double, when institutions which subsist have not been the subject of any serious investigation, inquiry or proceedings.

I will now address areas I have been asked to consider.

Financial reporting and accounting rules. INBS’s financial reporting system was designed to meet regulatory and management information needs. The system was developed over the years to accommodate new accounting standards and additional reporting requirements.

The new accounting standards reduced INBS's loan loss provisions in 2005, and resulted in low provisioning while the property market remained strong. In addition, the solvency ratio was boosted by unrealised surpluses in good economic times and then reduced sharply in the downturn.

INBS's business model was commercial and residential property lending to experienced people in Ireland and the UK. The model evolved over time due to competitive pressures and lower margins in the residential lending market. INBS's loan book was concentrated and significant amounts of new lending was repeat business with existing customers.

INBS was funded in equal amounts from customer accounts and the wholesale market. INBS's treasury function was operated in a risk-averse manner with the emphasis on maintaining safe, readily available liquid assets. The funds raised on the wholesale market extended the maturity profile of borrowings. INBS sought to eliminate interest rate and exchange rate risk through swap agreements.

INBS had sought to enhance the effectiveness of internal audit by recruiting more staff, together with training and improvements to internal audit systems. KPMG carried out a report on internal audit in 2005. KPMG also produced a strategic performance review of internal audit in 2008. INBS engaged Deloitte to carry out internal audits on the IT function, treasury and commercial lending. Internal audit had a direct reporting line to the chair of the audit committee. The internal auditor met non-executive directors without executives being present. Internal audit had a documented internal audit charter which set out the purpose of internal audit, the scope of internal audit work, reporting lines, responsibility, standards and authority. Internal audit had a documented internal audit policies and procedures manual. That, Chairman, concludes my address.