Mr. Cormac Butler:

We have documents going back to 2001. They were aware of the problems with IAS 39 and they raised concerns about it. They were certainly aware of it. Between 2005 and 2008 we had a situation where the European Central Bank would have been aware that banks were measuring insolvency and measuring their losses incorrectly, but the Irish Government was not so aware. In 2008 the Irish Government effectively either gave a guarantee or injected funds into the banks, but at that point the banks had already suffered losses. This has caused a problem, which probably explains why people are slow to correct this issue. The problem is that once one lends money to an insolvent bank one cannot take that money back out again. The bank must declare that it is insolvent and the money is then distributed to all the creditors evenly so no creditor is affected worse than other creditors. In 2008 many of the banks, if not all of them, were insolvent. The ECB had injected funds. The ECB had made a loss at that point. I shall outline what should have happened. The banks should have declared their insolvency and should have looked for an equity injection. The central banks really should have said: "We do not want the commercial banks to fail and therefore we need to put in an equity injection." They, however, did it the wrong way around. They lent money to the banks and the banks delayed telling us about their insolvent situations. The ECB lent money to the banks and the Irish banks then approached the Irish Government for support and funds, admitting they were in difficulty. It is the wrong way to do it.