Mr. Eugene Sheehy:

Chairman, members of the committee, thank you for affording me the opportunity to outline my views on the banking crisis. At the outset, I want to say I'm very sorry for what happened and my role in these events. I know a lot of people were let down and feel very angry, deservedly so. I draw no comfort from the extraneous factors that contributed to the crisis. I take personal responsibility for my actions and omissions. Public apologies on many occasions have not diminished the deep disappointment that I feel on a daily basis. Chairman, in my written statement I have addressed the themes that the inquiry requested me to focus upon including property risk concentrations, liquidity, business planning, remuneration, regulatory relationships, delegated authorities and the bank guarantee. Conscious of time and that these themes will be covered during my evidence, and in light of evidence given to the committee last week, I will confine my verbal remarks to a summary of the evidence contained in my written statement concerning the bank guarantee. I have been asked to make a statement on the appropriateness of the guarantee. Though we did not make the decision, I will describe my role on the night and this role is described in detail in my contemporaneous notes, of which you have a copy.

Together with our counterparts from Bank of Ireland, we asked for a meeting with Government. At that meeting, we requested a four bank guarantee, but not the blanket guarantee that was ultimately provided. We were in Government Buildings for over six hours, our presence at the meeting was not continuous, and we were dismissed from the decision makers' room on four occasions. At the first session we described what was happening in our business, and how our liquidity was being positioned. That day had been a tumultuous one on global financial markets. To stabilise the Irish banking market, we asked for a four bank guarantee. This was not a new idea. You will have copies of minutes of an AIB bank board meeting of the night before, in which I am quoted, "The authorities expect that two financial institutions will fail (unless white knights emerged) and would guarantee the obligations of the other institutions on a temporary basis", recorded in the AIB minutes the day before the guarantee. We were dismissed from the room while our request for a guarantee was considered.

At the second session we attended, we were told that Anglo was about to default. The Government wanted us to give Anglo a loan to get them through the week so that they could be decisively dealt with by the weekend.

We refused initially and were dismissed and were asked to reconsider our position. Working over the phone with colleagues back in Bankcentre we mobilised resources and looked into every possibility to come up with a response that would meet the Government's needs. At the third session, we said we would give Anglo €5 billion until the weekend. On notice at this stage that Anglo was about to default, we refused to go on risk for Anglo. Our offer was conditional on a Government guarantee for this Anglo loan. This solution appeared to be acceptable to the Government and we said we would start moving assets to have the funds ready by Wednesday morning, and that in itself was quite a complex and intricate business.

The meeting reverted to the four bank guarantee and its form. We made suggestions regarding duration of the guarantee - we wanted a longer one than the one-year one proposed - and also on the merits of including bonds ... of which we were in favour of. We were dismissed while a drafting process was undertaken and during this interval our input was sought on ... in bilateral sessions regarding treatment of subsidiaries, for instance, our Polish business, and on what basis would be ... what basis would be used to determine the price of the guarantee. When we were called back for the fourth session, there was a short discussion about a solvency statement being issued with the guarantee. We didn't think it was necessary and after discussion, the Government decided not to include that reference. We returned to the room and at 3:30 a.m. we were told we were no longer needed. When we saw the guarantee document for the first time the following morning, we could not understand why Anglo and Irish Nationwide were included. All our discussions that night were based upon a premise that Anglo was to be taken down. We did not think they would be part of the guarantee, in fact, we were at that time, in response to a Government request, risking our own liquidity to keep Anglo afloat until the following weekend.

From our perspective, a four institution guarantee was appropriate and necessary for a number of reasons. Firstly, an Anglo default was absolutely certain to result in an immediate across-the-board agency downgrade for all Irish institutions and an immediate worldwide risk aversion for all Irish institutions. Secondly, in Great Britain where we had high street branches and €10 billion in retail deposits, we could expect an immediate run on our deposits. Thirdly, given the Irish public's reaction to Northern Rock, a very minor player in this market, during their crisis in 2007, you could deduce from that it was certain that there would be panic on the streets and that our branches would not be able to cope.

In the absence of a statutory mechanism to deal with a failing bank, the options were to nationalise, liquidate or guarantee. There was no contingency plan nationally to deal with Anglo or at EU level to deal with the crisis in general. In the absence of alternatives, the default option was a four bank guarantee for the remaining four institutions, not the blanket guarantee ultimately given. This, I believe, offered the best chance to cope with the fallout about to be triggered by the imminent liquidation or nationalisation of Anglo and Irish Nationwide. The lessons from two weeks previously were fresh in everybody's mind. Solutions that didn't convince the markets invited misfortune. This was amply demonstrated when the US authorities allowed Lehman's to fail. The decision did not restore market discipline and within days the US Government had to rescue many institutions - huge institutions - and introduce a €700 billion TARP, the troubled asset relief programme. These events contributed hugely to initiating the meltdown in global liquidity.

I wrote up my notes of the minutes ... my minutes of the meeting a couple of days afterwards and absent hindsight observations that ... I have made some in this statement ... they are a contemporaneous record of events on the night as I saw them. Since I submitted my statement a month ago, I have been furnished with another record of events on the night from a Department of Finance source, which has been quoted at the committee. Comments are attributed to me that I cannot remember making. There was absolutely no evidence of any discussion of AIB's solvency on the night, in either my note or that of Dermot Gleeson's. We were asked for an update on what was happening in our banks which we gave. We were asked to provide funds to cover Anglo until the weekend which we agreed to provide. We were asked about the form of guarantee. We gave advice on duration and the instruments that could be included.

We gave advice on duration and the instruments that could be included. We were asked for our views on Anglo and Irish Nationwide, we said they should be nationalised. This fact is recorded in both my note and that of Dermot Gleeson. This fact is further collaborated by the note from the Department and I quote "Minister asks FR, did they agree with AIB, Bank of Ireland, that two need to be nationalised first. FR did not agree."

If I said the words attributed to me in the Department of Finance note, they could only have been in the context of what would have happened to the system if no remedial action was taken. There was absolutely no issue about AIB solvency at that time.

Chairman, in conclusion I spent 38 years in AIB, operated at many levels and I knew the organisation very well. I was proud of what the bank had achieved over the decades. I always viewed my job when I became CEO as one of stewardship, responsibility to staff, customers, shareholders and the public in general. It was my wish that in due course I would hand on the job to somebody else with the bank in good shape. That I failed in that responsibility, for me is a matter of eternal regret and sorrow.

Thank you, Chairman.