Professor Patrick Honohan:

They did not know that because they had not thought of the problem in the terms I have described - boom continues or bust happens - in this bifurcated way, this bimodal way that the bad would be very bad. They did not know in detail what sort of securities and collaterals Anglo Irish Bank had for the lending. It took a lot of detailed work by the time NAMA started to buy these loans. They said, "These loans are not worth very much because the collaterals are not as good, because the personal guarantees of the owners are nothing like as strong as the banks thought they were." People had not thought through the downside. Regulation is all about the downside. People will say, "Oh, the central scenario is for a soft landing." It does not matter what the central scenario is - it should be of no interest to the regulator and the Central Bank what the central scenario is. For regulation purposes we ought to know what the downside is and whether we can cope with it.