Professor Patrick Honohan:

The reason given was that dated subordinated debt was regarded in the market as almost as good as senior debt - as it was said,"We'll never be haircutted on this" - so banks issued it at an interest rate that was not all that much higher than the best interest rates. People who were investing in that did not think of themselves as taking large risks, so the investment advisers were saying to the Government, "Be careful about not guaranteeing this, because you could cast doubt that will affect those kinds of investors". That was the reasoning. In the end, the advice of Merrill Lynch was very complicated - "If you do this, then you should guarantee the loan, if you do that, then you shouldn't". I am not sure that was talked through in a very thorough way, because Merrill Lynch was engaged eight or nine days before the guarantee.