Professor Gregory Connor:

The Senator should bring that up again with Professor Walsh but I will address it. Bank accounts are unusual in how long the lag is between when a bank gets into real trouble and when the trouble is reflected in its accounts. The accounting profession had a strategy of minimising another phenomenon which was earning smoothing. They forced the banks to only take a loss when there were observable actions which could justify it. If you notice that you have funded a €50 million shopping complex and you know that no one will shop there because the economy has turned, you cannot take a loss. You have to wait until there is a default on loan repayments. Even as things got bad, there was no provisioning for the losses. You have to have a material action generating the provision. That was one of the problems. That is very much an accounting problem, although it touches on my area. There were errors in the way the banks' accounts were handled in terms of the slowness of recognising loan losses in the accounts.