Public Accounts Committee documents

Details of documents from 2008

7 May 2008: An e-mail with an attached briefing for new Minister for Finance Brian Lenihan states that Irish banks 'currently meet all the conventional measures of financial health - solvency, liquidity, profitability, asset quality'.

It says 'their strong performance over recent years provides a good cushion to deal with the current financial market environment'.

It says the Central Bank and Financial Regulator 'are working closely with domestic financial institutions to monitor their liquidity position on a weekly basis, identifying where significant funding pressures may emerge in the future'.

1 July: An email from Principal Officer Michael Manley of the Department of Finance to the Office of the Attorney General assesses that 'in the case of a takeover of a distressed financial institution by another domestic market participant, the transaction would be announced with the approval of the Competition Authority already secured'.

But, Mr Manley notes that the Competition Act does not provide for expedited decision making on that basis and suggests amending the Competition Authority Act.

In a separate email on 19 June, Mr Manley presses for draft emergency legislation to be made available to the minister 'with the powers necessary to take, as a last resort, a distressed financial institution into public ownership to support the maintenance of the financial stability in the State'.

He finishes the mail by saying the issue is urgent and important. 'One commentator (is) now suggesting it will extend well into 2009'.

18 September: A presentation by Anglo Irish Bank to the Department of Finance claims the bank will continue to be 'highly profitable' in 2009. The bank admits that losses from loans will rise sharply, but estimates that its bad debts in 2009 will be just €300m.

One of the slides in the generally upbeat presentation states that there is 'no requirement' for any outside funding for the bank.

Another slide, giving an overview of the bank's business, refers to 'a simple business model' and 'old-fashioned banking'.

It describes its borrowers as 'professional, experienced, well-capitalised' and claims all of its loans are secured on assets.

20 September: A briefing note for Taoiseach Brian Cowen at the time when the Government decided to increase the deposit guarantee scheme for customers to €100,000 says the decision was not taken in response to public panic.

It refers to assurances from the then Governor of the Central Bank and Financial Regulator that Irish banks were proving 'resilient', were 'well capitalised and liquid', and were 'weathering well' the current difficult conditions.

But a note from a meeting two days earlier shows that Central Bank Governor John Hurley warned Department of Finance officials that a 'potentially serious crisis' on liquidity - or banks' access to funds - was looming.

Mr Hurley proposed that a €10bn emergency fund should be prepared to provide funds to banks.

On Anglo, he also suggested looking at nationalising the bank, or providing support in return for a shareholding in the bank.

21 September: A note of a meeting involving Goldman Sachs, the Department of Finance, Central Bank and Financial Regulator contains a view from the management of Irish Nationwide that losses from its property loans would amount to 'a few hundred million euro'.

After examining INBS's top 30 Irish and UK loans, the note referred to 'reassurance' that there was 'real value there'. It said the society's auditors did not see its loans performance being 'worse than anywhere else'.

But the note also warned that Irish Nationwide needed help from the authorities 'soon', and was in danger of running out of funds in 11 days.

It suggested a range of options for discussion, including nationalisation or the break-up of the society.

22 September: A presentation by Chairman of Irish Nationwide Michael Walsh to the Department of Finance, dated 22 September states that doing nothing will inevitably result in the collapse of the society.

It sets out the options for action, including the provision of 'covert' funding, though it warns that this was unlikely to restore confidence in the institution.

The document says guaranteeing Irish Nationwide's deposits would be the 'least disruptive' option. It warns that a break-up of INBS would cause wider market problems, while it also sets out risks associated with merging the society into Anglo Irish Bank.

22 September: A meeting involving the Department of Finance, Central Bank and NTMA reports 'considerable outflows' of money from some institutions. The section naming the institutions is blanked out.

The meeting discussed the need for a 'war chest' to provide support for the banks. A Central Bank official says Anglo Irish Bank is asking for €7bn, but the Central Bank is not willing to do this unless absolutely necessary.

The meeting is told around €18bn is available.

26 September: A transcript of a handwritten note of a meeting which took place on 26 September says that at the meeting, Merrill Lynch advised the Government that a blanket guarantee for all banks could be a mistake and could hit national credit ratings.

Merrill Lynch also advised the Government at the same meeting that liquidating banks was the worst thing that could be done, and would accelerate trouble for all other institutions. Instead, Merrill Lynch presented a central scenario, which would involve liquidity being provided on penal terms followed by 'intervention' by the State.

It says the scale of the intervention required would present 'difficulties'. The meeting was attended by Merrill Lynch, the Minister for Finance, and officials from the Financial Regulator, Central Bank and Department of Finance.

28 September 2008: The Government was advised just prior to its introduction of the banking guarantee that Anglo Irish Bank was rapidly approaching the point where it had exhausted all possible sources of liquidity available to it.

In an advisory document prepared on 28 September, the day before the guarantee was introduced, advisors Merrill Lynch said that Anglo management was projecting a funding deficit of €0.1bn euro by 30 September, growing to €4.9bn by 24 October.

The report looked just at the liquidity and strategic options for Anglo Irish, Irish Nationwide Building Society and Irish Life and Permanent and was based on conversations with the three institutions. It found that all Irish banks were profitable and well capitalised, but liquidity for some could run out in days rather than weeks.

It found only 3% of Anglo's loan book was currently regarded as impaired by its management, but falling property prices would likely impact its book. It estimated that in a worst case stress test scenario, ordinary shareholders and those holding the lower category subordinated debt would lose €7.5bn.

It said the main need for Anglo was a pressing need for liquidity as a result of a sustained outflow of corporate deposits and overnight funding being unavailable to banks of their credit rating. On 26 September, it said, Anglo had formally requested a short term liquidity advance of €1.7bn from the Central Bank for the end of the month.

The report said Irish Nationwide's commercial loan book was regarded as being generally good but there were concerns over the influence of the Chief Executive. Based on its own projections, the report says, INBS had sufficient liquidity to meet needs for one to two months and in an extreme stress test scenario, most of its reserves of €1.8bn would be depleted.

On Irish Life and Permanent, the report said the asset quality was good but the institution relied heavily on wholesale funding and was approaching the limit of its eligible collateral at ECB.

In considering the options facing the Government, Merrill Lynch strongly advocates and rules out the possibility of letting an Irish bank fail and go into liquidation without any Government intervention.

While this option would initially have no financial impact on the government, Merrill claimed, the resulting shock to the wider Irish banking system would be very damaging it says. The resulting firesale of assets could precipitate dramatic asset deflation and force other Irish banks to take significant write downs on their own asset portfolios, thus depleting their capital positions, the report states.

The significant volatility in the equity and capital markets that would likely follow, the report continues, would mean access to any form of new capital for Irish banks would be severely restricted for a protracted period.

Instead, the report outlines a series of measures which could be taken, including the introduction of €5bn overnight liquidity facility by the Central Bank, State intervention in Anglo or Irish Nationwide, the introduction of a State-secured lending scheme, preparation for creating good and bad banks, the consolidation of financial institutions and finally and as an alternative to the introduction of the overnight liquidity facility, the guaranteeing of the six primary regulated banks.