So we now commence our next public hearing with Mr. Dermot McCarthy, former general ... Secretary General, Department of the Taoiseach, and Secretary General to the Government. The Committee of Inquiry into the Banking Crisis is now resuming in public session. And can I ask members and those in the public Gallery to ensure that their mobile devices are switched off? The ... as ... at our session now this evening, we will commence ... or hear from Mr. Dermot McCarthy, former Secretary General at the Department of the Taoiseach and Secretary General to the Government. Dermot McCarthy served in the Department of Industry and Commerce and at the Department of Health, where he rose to the level of assistant secretary general. He was appointed as Secretary to the Government in January 2000 and combined that role with Secretary General at the Department of the Taoiseach in July 2001. He retired in June 2011. Mr. McCarthy, you are very welcome before the committee today.

Before hearing from the witness, I wish to advise the witness that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect to their evidence to this committee. If you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given. And I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. The utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right. And members of the public and journalists are reminded that these are documents and that they are confidential and should not publish any of the documents so displayed.

The witness has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning and form part of the evidence of the inquiry. So if I can now ask the clerk to administer the oath to Mr. McCarthy please.

Okay, once again, thank you, Mr. McCarthy, and if I can invite you to make your opening statement please.

Thank you, Chairman. The scale and impact of events which are the subject of this inquiry are such that the work of this committee constitutes an important public service. I wish to support fully the committee in its work by answering your questions and by furnishing, as I have, a statement regarding 15 lines of inquiry before the committee. I will seek in my answers this evening to assist the committee as much as I can, as I sought to do in my statement, by setting out matters within my direct knowledge as Secretary General to the Government within the constraints of Cabinet confidentiality and acknowledging that many were matters in respect of which I didn't have expertise or responsibility. I will summarise my statement under six headings. In my statement, I indicated that I believed the conclusions of the Nyberg commission of investigation provided a broadly convincing account of the circumstances that led to the crisis. Nyberg describes serious failings by a wide range of actors, including a number of key elements of the public service. He notes that, ''Each one is [...] responsible for their own actions and inactions contributing to the accumulation and realisation of risks in financial markets''.

Everyone who was in a senior position in the public service over the relevant period, including myself, is burdened by these failings, and the deep awareness of their human consequences. With the knowledge and analysis of that period which is now available, like others I am challenged by the question of whether I could have done more to avert the damaging outcomes from the crisis. My regret is tempered only by the belief that I have performed my duties to the best of my ability.

On the regulatory regime, following consideration of the report of an implementation group, the Government approved a proposal to establish a single Financial Regulator within a restructured Central Bank. The proposed arrangements were altered following consultation with the ECB. The Government reviewed the provision for a separate board structure for the Financial Regulator as an important focus for accountability and responsiveness to public and consumer concerns. Following publication of the proposed legislation in 2002, further comments were received from the ECB, as a result of which the Governor's role in relation to the budget and staffing of the regulator was strengthened. The ECB also welcomed the fact that the Financial Regulator would remain a constituent part of the Central Bank.

The annual reports of the Central Bank and the Financial Regulator were submitted for information to the Government. These recorded the significant number of inspections of financial institutions carried out, and regulatory returns examined. The report in respect of 2006 highlighted that international independent reviews of the Financial Regulator's performance contain positive assessments of the regulatory system in Ireland. In its report of 2007, the IMF supported as appropriate the risk-based framework operated by the Financial Regulator in prioritising supervisory resources. The Government decided in 2009 to create a new, integrated regulatory system under the direction of the Governor. The Government was advised that, pending the enactment of new legislation, the boards of the Central Bank and the Financial Regulator had made changes to the operation of the existing legislative framework through improved linkages between banking supervision and financial stability.

On fiscal policy, the budgetary cycle involved the Minister for Finance setting out the broad economic framework within which budgetary decisions should be shaped. This provided a context for the engagement by the Department of Finance with individual Departments to settle their spending Estimates. The Department of Finance's proposals were based on securing financial stability and the productive capacity of the economy, while avoiding inflationary pressures and addressing priority needs. The Department pointed out the potential for reverses, both domestic and international, associated with declining competitiveness, exchange rate movements, increases in commodity prices and the possibility of a downturn in construction activity. The Department recommended the maintenance of a cyclically-adjusted positive general Government balance and containing the growth in current expenditure to the nominal rate of economic growth. From 2003 to 2006, the stability programme reports presented to the Government identified a gradual and orderly reduction in housing output to a more sustainable level as a significant factor likely to impact on economic performance, partially offset by growth in other components of investment expenditure. In the report for 2006, the potential for economy-wide consequences of construction-specific developments, such as rising interest rates, was noted. The moderation in prices and activity in the property market in 2007 was highlighted. The absence of a sense of impending crisis was reflected by an assessment by the IMF in 2007, which noted that the banking system was well-capitalised and profitable and that stress tests by the Central Bank indicated that even in an extreme scenario, the major lenders had adequate buffers to cover a range of shocks. Economic policy was not formulated by Government in the belief that there was a serious risk to financial sector stability.

The framing of budgetary proposals in Government discussions had regard to the terms of the relevant programme for Government and specific objectives adopted by the Government. The substantial reduction in the debt-to-GNP ratio, substantial budget surpluses, significant annual transfers to the National Pensions Reserve Fund and an ambitious programme of investment in infrastructure to increase productive capacity, with little or no recourse to borrowing, created a sense of confidence with regard to fiscal matters. There wasn't a single view about the conduct of policy or the outlook for the economy. There was of course awareness of contrarian views occasionally expressed in the media regarding the risks of an economic collapse. It was widely considered that this was improbable, while vulnerabilities were nonetheless acknowledged to exist.

Most decision-making requires judging the probabilities of events occurring while striking a balance between competing objectives in the context of Government policy.

Collective responsibility requires members of the Government to support decisions once taken. The legitimate exercise of its democratic authority by the Government must be respected by officials. For example, the Department of Finance in its budgetary submissions signalled a preference for a lower rate of expenditure increase than occurred in a number of years. In the years leading up to the crisis the direction of Government policy was not significantly altered in the light of parliamentary scrutiny.

On banking matters, the primary relationship between the banking sector and the Government was through the Minister for Finance and the Department. The banking industry was represented by the Irish Bankers Federation and Financial Services Ireland on general policy matters such as the development of the national payment system. From the establishment of the IFSC, the Department of the Taoiseach chaired the Clearing House Group whose members included representatives from the Departments of Finance and Enterprise and Employment, the Revenue Commissioners, the Financial Regulator, the IDA and, later, Enterprise Ireland.

The Clearing House Group and a range of associated working groups provided a forum for exchange of information and suggestions between different categories of participant in the sector. As its name implies, the group was primarily a vehicle for commercial intelligence gathering in the context of the competition between jurisdictions for investment. The focus of the group was the identification of opportunities and a variety of specialist activities, the marketing of Ireland and the tackling of barriers to growth, such as availability of skilled personnel. The operation of a credible regulatory system was seen as critically important in securing the reputation of the industry and attracting appropriate new entrants. Discussion at the Clearing House Group covered a broad range of public policy. Concerns voiced at times about proposals which were seen as disproportionate, by reference to international practice, were pursued bilaterally with the relevant agency. In published strategies for the future of the sector, industry representatives expressed their support for a regulatory system which was effective, consistent and efficient.

Turning to the bank guarantee, in the period leading up to 29 September 2008 the Government was briefed on liquidity difficulties in the Irish banking system by the Minister for Finance and increased the deposit guarantee to €100,000 on 20 September. On the evening of Monday, 29 September a meeting attended by the Taoiseach, Minister for Finance and the Attorney General was advised that, unless measures were taken before the financial markets opened on Tuesday morning, irreversible damage could be done to the economy through a banking collapse. The expectation that no Government would allow a bank to fail, especially in the aftermath of the Lehmans example, was reinforced by the potential consequences outlined to the meeting. It was made clear that no European or ECB initiative was in prospect which would address the immediate crisis faced by Ireland. The advice was that the Government had one opportunity to make a decisive intervention, to stabilise liquidity and secure the Irish banking system. It would have no certainty of success but the alternative was certain disaster.

A request to meet from the chairs and chief executives of AIB and Bank of Ireland was agreed. The banks' representatives confirmed the gravity of the funding situation for the Irish banks, with difficulty in getting even short-term funding from the money markets. The negative sentiment towards Ireland was focused on particular institutions, but all were now impacted. They argued that effective action was necessary to reassure the markets. The Taoiseach and the Minister resolved that a broad guarantee would be recommended to the Government. The option of nationalisation of Anglo was considered, but it was concluded that such action could have more negative than positive effects on market confidence. It was also understood that a decision to nationalise Anglo could be taken at a later date, should it be appropriate.

The guarantee would be offered on commercial terms and would provide a framework for any measures required to build market confidence in the Irish banking system. The approval of the Government was given by an incorporeal meeting which was conducted in the early hours of Tuesday, 30 September. A particular concern was that the guarantee might be challenged on European state aid grounds. It was agreed that a formal notification to the European Commission would be made immediately. A full supporting case, including all of the material considered in the discussion, would be detailed in a submission at the earliest opportunity. The European Commission subsequently approved the decision as an appropriate means to remedy a serious disturbance in the Irish economy.

On the programme of assistance, in response to international concerns by mid-2010 about the State's financial position, the Government began the preparation of a medium-term expenditure framework in tandem with the fiscal responsibility framework.

It was considered that public confirmations for a recovery plan of the adoption of a comprehensive programme of fiscal reforms and specific measures to achieve the necessary deficit reduction by 2014 would improve market sentiment towards Ireland. The continuing dependence of the Irish banks on ECB liquidity support was evident, as was a market view that further recapitalisation would be necessary. The ECB Council conveyed to the Minister for Finance that the Government should apply for European financial support. Department of Finance officials travelled to Brussels for exploratory discussions on the parameters of a possible programme of assistance if the Government were to decide to apply. The tentative nature of these discussions reflected the Government's concern that the conditionality of any such programme could include unacceptable terms such as changes to the Irish corporation tax regime. On 19 November the President of the ECB wrote to the Taoiseach and to the Minister for Finance stating that ELA could only be continued if Ireland applied to the Eurogroup for financial support and proceeded with a decisive restructuring and adequate recapitalisation of the Irish banks. The Minister, in consultation with the Governor and the CEO of the NTMA, sought the approval of the Government for a formal request for external assistance, given that the Government could not borrow in the market at current rates and the serious liquidity problems in the Irish banks. Some days later, the national recovery plan was published by the Government - the programme of external assistance was formally announced on 28 November. Imposing haircuts on unguaranteed senior bondholders was raised with the international institutions during discussions on the programme of assistance. The concept was strongly resisted because of their concern about its potential impact on wider financial stability. In March 2011 the agreement of the ECB was sought but declined for the announcement by the Government of a statement of intent to impose burden-sharing on unguaranteed senior bondholders in Irish banking institutions in wind-down.

On changes since the crisis, with regard to the conduct of economic policy the establishment of the Fiscal Advisory Council and the oversight by the European institutions as part of the European semester have brought a greater transparency to Irish fiscal policy. Policy analysis is supported by greater economic expertise within the public service. The national risk assessment framework is a positive development and the legislation to provide for the registration of lobbyists and lobbying activity should also assist in the monitoring of efforts to influence public policy. It is clear, however, that irrespective of any structural or capacity developments that may be implemented, Governments will still be faced with a need to exercise judgment in setting fiscal policy and in assessing the risk to be taken into account in framing budgetary decisions. That concludes my opening statement Chairman and I am happy to answer the committee's questions.

Thank you very much Mr. McCarthy. If we can begin our questions this afternoon and I will invite Deputy Eoghan Murphy to commence them. Deputy, you have 25 minutes.

Thank you Chairman and thank you Mr. McCarthy, you are very welcome. In your opening statement on page 11, you state that:

Collective responsibility requires members of the Government to support decisions once taken. The legitimate exercise of its democratic authority by the Government must be respected by officials.

You were Secretary to the Government and Secretary General of the Department of the Taoiseach from 2000 to 2011, so you were at the top of the Civil Service for three different Governments and three different Taoisigh. So in that role, if you could just clarify, can you overrule a Taoiseach or Government or act against a Government's wishes?

In short, no Deputy. I think there are certain circumstances when one would, like any public official, be required to decline to comply with a direction if it was perceived to be unlawful and there are certain circumstances in relation to the expenditure of resources when one would be entitled to seek a written direction to be copied to the C and AG. But in general terms, overruling Taoiseach or Minister would not arise, I think.

Did you ever seek such a written direction in relation to the use of financial resources?

I never had that requirement.

Okay. And you provide the Taoiseach and the Government with advice. Is it safe to assume that you are across the same information as the Taoiseach is across?

Not necessarily Deputy. I think in the formulation of policy and the furnishing of advice, the Department of the Taoiseach, through myself, would have provided a core element of information and advice, primarily in relation to the conduct of Government business, in other words, preparation for Cabinet and the management of Cabinet committees and then the particular responsibilities that the Taoiseach would discharge personally. But the Taoiseach would also be in possession of advice from other sources, including his political advisers, his ministerial colleagues outside the Cabinet framework and obviously from other, more direct personal engagements.

The information coming to the Taoiseach through the apparatus of the Civil Service or the Departments, you would be across the same information coming through that stream?

In general, but not always.

Okay. And do you have any role in the formulation of policy?

Well, there's some aspects of policy where the Taoiseach has a direct personal role, in addition to being the chair of Government, and in those areas, for example. in relation to the conduct of international relations at head of Government level, or the conduct of the social partnership process, when that was under his aegis, then one would be making a direct contribution and giving direct advice. In other areas, it would be largely a matter of co-ordinating material coming from other sources. The Department of the Taoiseach isn't an analytical Department. It doesn't have an extensive policy analysis function. It primarily acts to ensure that information from other Departments and agencies is available and presented in the appropriate way.

And do you advise on matters of judgment?

One ... at times. More in relation to process; in other words, where an item is ripe for decision or where further engagement would be desirable.

And your ultimate responsibility is to whom? As the head of the Civil Service, who's your ultimate responsibility to?

I wasn't the head of the Civil Service.

Sorry, well, as Secretary to the Government and Secretary General to the Department of the Taoiseach, who were you responsible to?

To the Taoiseach.

To the Taoiseach?

Yes.

Okay. And when we talk about the responsibility of Government, can we distinguish between the permanent government and the elected Government?

Well, the permanent government in the sense of officials in the Civil Service-----

Yes.

-----then there's a very clear distinction. They are there to serve the Government of the day, which has the democratic mandate to make decisions. The role of the Civil Service is to advise, support and implement. I think it is very conscious that is its subordinate role in terms of governance.

So, when we talk about the responsibility of Government, we're talking about the responsibility of the elected Government?

Yes.

Okay. On the first page of your opening statement, you say and you stated again, "The conclusions of the Nyberg [report] give a broadly convincing account of the circumstances which led to the crisis." And, on page 7 of the Nyberg report, it says, "The Government actively supported the market over an extended period against the apparently fairly weak but clear opposition of the Department of Finance." Do you agree with this statement from Nyberg?

I think that's true, particularly in respect of the end of the '90s and the early years of the 2000s.

Were you aware of this opposition at the time?

It was expressed, both in terms of formal submissions to the Government from the Department of Finance and the informal discussions that would take place.

So you were?

Yes.

Okay. In every year, bar one, from 2000 to 2008, the budget package agreed by Government was greater than what the Department of Finance was recommending, and were you satisfied with this outcome to the budgetary process in each of those years?

It wasn't a matter for me, Deputy, to be satisfied. I was there to ensure that the decisions were properly taken and recorded and implemented. In terms of the reasons for that outcome, I think, in terms of the analysis in the Wright report, the factors are well set out as to why that would be, including the belief that the opening position from the Department was that: an opening position.

Well, did you ever advise or caution against the increases that were being decided upon by Government versus what the Department of Finance was recommending?

I will certainly have advised about the issues that they felt strongly should be taken into account.

Advising in support of those, of taking into account those issues, or-----

That they should be certainly taken into account.

Okay. But then they weren't taken into account, is that correct?

Well, I think, Deputy, one would have to say they were taken into account but a judgment was made in the round as to what the appropriate outcome should be-----

Okay.

-----and that was the prerogative of the Government.

Okay. Were you ever concerned that irresponsible budgetary decisions were being taken because of a looming election?

I think one would have to be conscious that the timing of an election was in the minds of members of the Government. I don't believe that one would necessarily conclude that the decisions specifically were irresponsible.

Okay. How do you explain the reversal in spending in 2002, following the general election? So, at the beginning of the year, for the first six months, spending was 22% higher, year-on-year, but, by the end of the year, it was only 14% higher and, after the election, a memo was sent by the then Minister for Finance to the Departments requesting that they cut back on expenditure.

From memory, Deputy, I believe there was also a change in broad economic conditions at that time, including, if I recall, exchange rate movements, which would have had a bearing on the performance of the economy, so I'm not sure it would be safe to conclude that any change was purely a function of the electoral outcome.

Okay. How do you explain the increase in spending in the budget for 2008, given that tax receipts in 2007 were short by €2 billion?

Well, as I recall, the advice that came in respect of the outlook for economic growth was that it would still be significant, somewhat below full potential because of the expected decline in construction sector, but it was still, if I remember correctly, targeting a modest outcome in terms of the government balance.

Okay. I think revenues contracted another 14% in 2008, and all of the spending increases for 2008 were reversed in the budget for 2009.

That's certainly true, but through the course of 2008, the pace of decline in tax revenue, in particular, was very rapid and striking and the forecast in, as I recall, May, was less than half of the assessment provided to the Government in September.

So given the €2 billion shortfall in 2007, this continuing shortfall in tax revenues wasn't anticipated into 2008 in drafting the budget?

I don't believe it was.

Okay. Were you ever concerned that the Government was not using fiscal policy appropriately to manage the economy following the adoption of the euro?

I think that there was a concern about the need to ensure that the fiscal policy was appropriate, given the impact of the adoption of the euro, and that there should be, on a cyclically adjusted basis, a degree of headroom to provide for any reversal that might arise. The amount of that headroom as recommended in the June or July annual submissions by the Department of Finance was pretty modest and in most years was, in fact, achieved. So one would, perhaps, assess, in retrospect, that the degree of countervailing force, if you like, to be provided by fiscal policy wasn't sufficiently understood.

Okay. What was your response to the European Council censure in February 2001 which said that they had "repeatedly urged the Irish authorities to ensure economic stability by means of fiscal policy, and it regretted that this advice was not reflected in the budget for 2001 despite developments in 2000 indicating an increasing extent of overheating"?

I think there were two strands of reaction to that Deputy. On the one hand there was, I think, acceptance that there was a case to be made in respect of the performance of fiscal policy, but there was also a sense of dissatisfaction that the terms of the censure was not either proportionate or equitable having regard to the performance of other member states.

Let's leave that part of it aside for a moment. But the actual concern it was expressing about the management of fiscal policy. Brian Cowen said in his appearance before the committee - and this is using fiscal policy to counter for economic stability given that we didn't have monetary policy in our control anymore: "Such conditions do not appear to have received adequate attention over the period 2000 to 2006." Do you agree with that?

I think in the light of circumstances as they evolved, yes. But I think it's important to say that, as I understand it, the estimate or calculation of the cyclically adjusted balance, certainly in advance, in respect of the Irish economy, is not an easy task. And in the core documents provided, there's reference to the extent of the recalculation by the IMF over the period of the seven months as to what the actual cyclical balance had been, in retrospect, never mind in prospect.

But if we accept what Brian Cowen said to the inquiry, does that mean that the European Council censure in February 2001 was not given sufficient attention?

I think it was given attention in the sense that the formulation of budgetary strategy as recommended to Government by Finance did emphasise the importance of securing fiscal sustainability, having regard to the risk that were in prospect, so I think it was acknowledged but, perhaps, not sufficiently.

And yet, despite this, Mr. Wright concluded that Ireland failed the test of prudent fiscal management. Do you agree with that?

Yes.

Did you ever feel that the budgetary process was overwhelmed by the programme for Government or the social partnership process?

Mr. Wright made that observation or reached that conclusion in a particular context which was that the process was overwhelmed.

In other words, that the way in which the budget was formulated, progressed, debated and adopted didn't allow sufficient time for all of the relevant factors to be taken into account and the pressure for expenditure arising from the programme for Government and the pay terms which were established in the public service through social partnership weren't sufficiently tested. And, in that respect, I think he's probably right.

Okay. You were a member of the McDowell group on the establishment of a single regulatory authority for the financial services sector. Why was your proposal for the new structure, the one that was favoured by Government ... Charlie McCreevy called it the McCarthy compromise?

So I noticed. I can't say why it was favoured by Government but I suspect it might have been for the reasons that it seemed to me to be a possible way forward, as a member of the committee. I should say that I was representing the Department nominally because the Department had an IFSC responsibility. At that time, I had no involvement with the IFSC, so mine was a watching brief. And in the discussion, it seemed to me that the desire to have a focus for accountability and engagement through a board, a statutory board, which would be accountable to the Oireachtas, was important but the ... equally, it was important to have a clear, direct oversight from a financial stability point of view from the Central Bank functions. And, therefore, it seemed to me that a process which had a focus for accountability and operational autonomy but overseen by a stability framework made sense, and I suspect it did to the members of the Government as well.

Did the alterations requested by the ECB, did they have a material impact on the quality of our regulation?

Arguably, they improved it from the point of view of ensuring that there was, at least, the potential for financial stability to provide the guiding framework for the operation of supervision and regulation.

Okay. In October 2009, in an interview in the Financial Times, Bertie Ahern was reported as stating that the decision to create a new Financial Regulator was one of the main reasons for the collapse of the Irish banking sector. Do you agree with this?

No.

Do you take responsibility for the regulation ... the model of regulation that was adopted?

No.

Okay. If we could move forward then, please, to 2008, into the crisis period and, actually, if we can go to the evidence book, Vol. 2, page 15. This is ... it'll appear on your screen if you don't have the book in front of you. This is bullet points for Cabinet on 28 September 2008. You see it in front of you there on the screen.

Yes.

Yes, it's fine. Here we go.

Thank you. Were the Cabinet aware that a blanket guarantee was a possible option following the meeting of the Cabinet on the Sunday?

That's a more inclusive blanket guarantee, Deputy, yes?

That's right, yes.

In answering, Deputy, I have to be conscious of the requirements of Cabinet confidentiality. But I can say very emphatically that there was no decision in respect of any banking matter taken at that meeting.

We know the decision wasn't made until the Tuesday evening or the Monday evening, but it's the formula or the shape in which the guarantee was taken on, Mr. McCarthy.

Just to clarify, at no point in those bullet points, while it does use the word "guarantee" ... it's "Legislate to guarantee/take control of more troubled institution(s)." But there's no reference to a system-wide guarantee.

It's difficult to answer your question adequately, Deputy, without indicating what the Minister said, which I'm not in a position to do.

Okay.

But what I can say is that the meeting which was, obviously, about another matter, budgetary preparation, was briefed at ... towards its conclusion, by the Minister on the general situation in relation to banking difficulties and the general state of preparations to engage with them.

Okay.

Can I just ask what was ... maybe to assist you in answering that, Mr. McCarthy ... is that we completely understand the confines of Cabinet confidentiality and so forth. But in the interim period between the one Cabinet meeting and the other Cabinet meeting, discussions, correspondence, other modalities may have been in play. And in respect of Deputy Murphy's question with regard to the overall shape of an overall inclusive guarantee, was that in that space at that time?

To help the committee as much as I can, Chairman, there was no decision and there was no orientation or mandate in respect of an approach arising from that Government meeting.

Okay. Thank you. Back to yourself.

Thank you, Chair. Did the Cabinet Ministers know, upon leaving that Sunday Cabinet meeting, that something would be happening the next day?

Again, stretching helpfulness, I think, to the very limit, no.

Okay.

But equally, Deputy, I think it would be fair to say that they wouldn't have been surprised that something did arise.

Okay. Thank you for that. Let's go then to the meeting on the 29th. Did you know prior to going to the meeting that a decision on Anglo would be taken that night?

No.

At what time did you reach the meeting and at what point in the discussions?

I think I was notified that there would be such a meeting earlier in the afternoon and I arrived at it, I think, some short time before 7 p.m. So I can't say for sure when the meeting started but I suspect 6.15 p.m., 6.30 p.m., something like that.

At this point had the possibility of a system-wide guarantee been put on the table by anyone?

Well, obviously I can't say what was said before I entered the room but the discussion was, at that point, certainly dealing with the nature of the problem; in other words, what had happened during the day, the outflow of funds and so on.

Okay. Brian Cowen was chairing the meeting, we've heard in evidence. What was your role at the meeting?

Well, my expectation in joining the meeting was that this was a briefing meeting. In other words, in the same spirit as a meeting which I had accompanied the Taoiseach to on the previous Friday, I think, in the Department of Finance. So my expectation was that this was a briefing in anticipation of the scheduled Government meeting the following morning. So my demeanour, if you like, my expectation in arriving was that this would be a matter of hearing a briefing and to prepare what might be put to Government.

Do you have an official minute or note of the meeting?

No, other than, obviously, the record of the decision which was my primary responsibility, as it emerged.

We know that bankers who were in the building on the night drafted contemporaneous notes of their ... what they recall had happened either the next day or in the following days. Did you draft any such note?

I didn't, Deputy. Perhaps ... just to explain, my primary responsibility as Secretary to the Government was what was the Government's action and what was required of it and, therefore, the conduct of the incorporeal meeting, which ... the minutes of that, obviously, were presented subsequently to Government for signing an adaption as usual. What transpired the following day, of course, was that there was a series of parliamentary engagements where the reasons for the decision were outlined by the Taoiseach and the Minister for Finance and there was extensive briefing and speech material prepared in ... mainly in the Department of Finance for that. It had already been decided the previous night that the notification and submission to the European Commission on the state aid issue would be done immediately and that all of the material which was considered during the course of the night would be reflected in that. And I saw, within hours, material which suggested to me that that process was, indeed, under way and would be comprehensive. So I didn't make a record of my own in regard to the night.

The meeting happened in the Department of the Taoiseach. Who's responsible for the meeting room, the papers left over on the table, drafts of press statements, drafts of guarantees that might have been present in the room?

In general, Deputy, where a meeting takes place in that context it's part of the Taoiseach's private office, so his private office staff, as a matter of routine, would take up and generally destroy any documents that would be left behind by those who were at the meeting.

Did you see any documents being destroyed after the meeting?

No.

Do you feel, as the Secretary General to the Taoiseach and the Secretary to the Government, that the Taoiseach was lacking in advice from any quarter during the course of the evening?

Not lacking in advice, Deputy, he was presented I think with a very stark picture which built on briefings which had been provided over previous days. He had assessments which were based on judgment, in the context of a very fevered international environment, and presented with the necessity to make a rapid decision, which could only be a judgment call, there was no analytical route to the right answer.

Did you know that officials from the NTMA were outside of the meeting room?

Not until late in the, in the evening when I learned they were consulted by Kevin Cardiff in relation to some specific aspects of the text of the guarantee.

You said you thought you were attending a briefing ahead of a Cabinet meeting the next day, and Dr. Michael Somers, when he was before us ... gave the following evidence:

I don't know why, if its true, that the two main Irish banks were prepared to pony up €5 billion each, for whatever period, provided they got a State guarantee, I don't know why that wasn't followed. If that is ... and that ... I've been told that that's what the scene was. Now, how that changed from five or six in the evening to guaranteeing everything that moved by three or four o'clock in the morning, I don't know. And, as I say, I think its a bad idea taking important decisions in the middle of the night.

So, how do we go from the possibility or from possibly guaranteeing €10 million, €10 billion to keep Anglo open until the weekend, to guaranteeing absolutely everything in the Irish banking system?

Well, in, in terms of the options which were considered, the idea of providing liquidity support for Anglo for a short period, was certainly considered. And it was considered also in the, in the context of the formulation of the guarantee strategy itself, that in other words, there mightn't be an immediate beneficial impact of sufficient scale such that they would still need liquidity support. But it was in the context of the scale of the outflows, which was reported, and very much on the explicit advice of the Governor and the Financial Regulator that in, in taking a step which mightn't be effective, there was a real risk that one would be removing the possibility of taking a second step that would be effective. In other words, there was one shot.

You, you, you believe that there was only one shot, that you couldn't have just guaranteed the liquidity of Anglo to at least get you through to the next day?

In, in the light of the advices and the discussion ... I hope that's not me, it is me, my apologies Chairman. I was sure I had ... I will ... indeed, apologies, Chair. I think in light of the advices which were presented and the discussion, there would have been strong concern that if one moved to buy a day or two, that that was money that would be burnt, in the context of the immediate issue but also that the prospect then of taking effective, decisive action would be diminished. So it wasn't seen as a viable alternative.

At any point did you advise against an incorporeal Cabinet meeting, and push for a full Cabinet decision in person?

No.

Okay. At any point did you advise against the decision itself?

No, I don't think my advice was actually sought in the final run because, in a sense, this was a situation where the expert opinion of the key statutory authorities was what was relevant. But it seemed to me to be a reasonable decision.

Okay. Are you satisfied now in hindsight that the expert opinion of the different State authorities was in the room at the time, given that we know that the NTMA was not present?

Final question now, Deputy.

Well, I think in, in all of the circumstances, it would have been preferable if the senior personnel from the NTMA were available and present but their views were known and, indeed, voiced in terms of the discussion by Kevin Cardiff in particular.

But, then from your recollection-----

Final question now, Deputy.

From your recollection, what were those views, as expressed by Mr. Cardiff, as to the view of the NTMA on the solvency of Anglo Irish Bank and on the knowledge of the Financial Regulator as to what was happening in the various financial institutions?

I'm not sure that there was any view conveyed in respect of the solvency of Anglo Irish, but there was certainly an NTMA view that nationalisation would be desirable.

And in relation to the knowledge of the Financial Regulator and whether or not you could trust the information that they had, if they had all the information that was needed to make that decision?

I think that the ... I'm not sure that I recall any view in respect of the regulator being expressed either vicariously or directly by NTMA.

Okay, thank you and just-----

Okay, right we are moving on. Senator Marc MacSharry.

Thanks very much. And thanks very much, Mr. McCarthy, and sorry to have you here so late. Can I ask you, in the lead-up to the decision on the guarantee did you consult with any parties outside your Department such as the Central Bank, the NTMA, members of the IFSC clearing house, on the options that might be available to Government?

No.

In terms of Mr. Trichet, did Minister Lenihan advise you of any telephone conversations he ever had with Mr. Trichet, in particular regarding the burning of bondholders or burden-sharing? And, if so, can you advise on the contents of any discussions around that?

So ... not just in respect of the period of the guarantee?

Well ... anything that you might think is pertinent, but certainly that.

Okay, well, I don't recall the Minister saying anything in respect of communication directly from president Trichet on the night of the guarantee, put it that way, but there was a report from the Governor on his conversations with the ECB. Subsequently, particularly in the evolution of the banking strategy and then later again in the run-up to the bailout decision, certainly the Minister would have had a number of conversations with president Trichet, obviously, routinely in the ECOFIN context, and he would frequently have reported those, both formally to Government and more informally.

We might talk about the bailout period later but in terms of the guarantee itself, is it your understanding that there were clear communications perhaps, rather than phone calls as you've said? And did they always manifest themselves through the Governor? And thirdly, when the Governor spoke about such issues was it always understood to be the case that if the Governor spoke this was Jean-Claude Trichet's position?

Well, I think if the Governor was purporting to reflect the view of the ECB, then, clearly, that would have been the case and, certainly, in the course of the meeting on 29 September, he was very explicitly reflecting what he had heard from President Trichet. The Governor, obviously, is a member of the ECB council so would normally be expected to reflect the position of the ECB in any event in terms of ECB functions. But I think the Governor would always have made it clear if he was purporting to represent the view of the president, as such.

Kevin Cardiff, in his witness statement, said that the National Recovery Plan 2011-2014 was finalised in time to be the main influence on major parts of the programme of assistance, and that the troika partners were happy to accept the four-year plan that had been developed in Ireland and to build on it. Can you elaborate on the substantive differences, if any, between the troika's position in the negotiations and the provisions within the national recovery plan?

Well, I suppose the primary difference between the two is that the recovery plan, as published, didn't deal with banking matters in detail. It was primarily a fiscal framework for achieving the 3% deficit by 2014 with a strong set of commitments and messages about growth and jobs strategy, which, of course, were critically important in terms of debt sustainability. So that was the primary difference.

On the fiscal adjustments and the pace of the adjustment to achieve the required deficit, I don't think there were any significant differences, Senator. Obviously, in the memorandum of understanding, some of the content of the national recovery plan was expressed in a more granular way in terms of timescales and deadlines and so on.

In your statement, you said that the European Commission and the ECB, excuse me, favoured a front-loading of adjustment within an overall adjustment of at least €15 billion by 2014. Were they specific ... to where, you know, on the fiscal plan - you said the fiscal plan was the difference, rather, that didn't include the banking side - and were they specific on where there needed to be cuts? Mr. Cowen, when in, in his own evidence in questioning, we asked him and he said that there was flexibility. Was there flexibility or was there... were they prescribing measures or were they just interested in the bottom line?

Their primary focus, I think, was on the bottom line. In other words, the pace of the adjustment. And there was certainly a view that the initial phase of this multi-annual plan should be as ambitious as possible and there was discussion about figures of €7 billion, €8 billion, €9 billion, as opposed to the €6 billion which was ultimately adopted. On the specific measures, in the course of consultation ... and I think Kevin Cardiff's evidence was correctly specific about this, that the text of the plan wasn't shared with the international institutions, to my knowledge, but there was certainly discussion about issues which might be addressed, some of a general structural kind, obviously the broadening of the tax base as part of the adjustment. They were also, I think, very emphatic about the need for labour market adjustments and, in particular, the reduction in the national minimum wage.

Just ... when you said there that the text of the plan wasn't shared with the international institutions, who was it shared with, if it wasn't shared with them? Was that not-----

Sorry, Senator, just to be clear, the text was in draft being worked on by officials from a number of Departments. Elements of it had been submitted to Government. In fact, I think, perhaps in three instalments, the text was considered formally by the Government. So while that process was under way within the Irish system, the text wasn't shared with the international parties. That happened, I think, in the couple of days coming up to publication, which, from memory, was, I think, 24 November.

So as yourselves, in conjunction with the line Ministers, prepared a plan independently, you weren't liaising with anybody of the three institutions who ultimately were the troika, is that the case?

In parallel with the internal preparations, obviously there were discussions going on which started, I think, in October, as I recall, when the normal consultation with the Commission would be happening as part of the general, I suppose, liaison and oversight arrangements at that time. And that developed then into the precautionary discussions that Kevin referred to on foot of the pressure to engage in a programme of assistance. So during that process, things which would appear ultimately in the recovery plan were certainly being discussed in substance with the Commission and IMF people but they weren't party to the drafting, shall we say.

Okay, so just to summarise it - you correct me now if I'm wrong, because I don't want in any way to be seen as being judgmental - you were, kind of, making suggestions through the back channels, that, you know, "Would this work or would that work?", and they were giving their reaction to that. Is that-----

Well, I think the substantive issues had been flagged in discussion for some time, so I don't think it was a matter of seeing would an item run. It was ... and I have to say, I wasn't party to and the Department of the Taoiseach wasn't party to those engagements-----

Sure, yes.

-----but, as I understand it, if you like, the substantive policy issues were the subject of discussion before they were finalised by Government.

And, again - sorry to make you repeat yourself now - you said earlier that the partnership was an issue that they did want to, kind of, visit. And did you say the minimum wage or what was the second one?

I don't think I mentioned partnership-----

Sorry.

-----but the national minimum wage was certainly an issue that they felt would be an important structural adjustment that would facilitate jobs growth. That was also a view shared in parts of the Irish system, so it wasn't an imposition.

Was it a red line issue? Not for the Irish side now, I'm talking about the institutional side - the three institutions.

I'm not in a position to say, Senator; I rather doubt it.

Would you know was it the IMF or the Commission or the ECB that raised this issue? Or were they all three at one on this issue?

From memory, I think the reporting by colleagues suggested that it was the Commission who were most convinced of the merits of this approach.

And was it their position that the minimum wage should be reduced or increased?

They weren't for increasing it, Senator, no.

They were for reducing it then.

Reducing it, yes.

Okay. And did they prescribe how much or do you know?

I don't believe so but I couldn't say for sure.

Okay. Was there a discussion in the Department that may be we could do 50 cent or €1 or €2 or ... what way did that work? Do you know?

There was a discussion ... there was a cross-departmental/ministerial discussion about, obviously, the emerging text of the national recovery plan, and the pros and cons of that issue were certainly discussed.

Okay. Did you feel that the approach by the Commission to reduce the minimum wage was accepted by our side or the Government's side of the day as opposed to our side? Or was it something that was a bone of contention for the negotiators and ultimately the Minister?

No, I think it was accepted by our side as an appropriate adjustment.

Any other issue? I think you mentioned two when you mentioned the minimum wage. Was there another issue that was ... that there was?

Well, there was a related issue which was the system of employment regulation orders and sectoral wage regulation which-----

Just explain to people that might be watching. Is that, for example, if electricians worked that they get so much an hour or bakers or ... and so on like that?

Yes, the system applied to some designated industries or occupations. In the end, what was provided in the recovery plan was that this system would be reviewed as indeed it was subsequently.

Okay. And were they prescribing in any way that these should be reduced or-----

No, I think they were unenthusiastic about such systems of wage regulation. But there was a strong view in the Irish system that that process, generally-----

Could be visited?

-----should be revisited.

Okay. Were there any other issues, just to move off this point then, that you felt through colleagues, I know that you weren't directly involved, were being prescribed in some way as "must be included" issues?

I don't believe so, Senator. I think there was a strong measure of endorsement, indeed, of the broad approach.

So, would you agree then that ... would you agree with Mr. Cowen that there was flexibility on the side of the Irish Government as to how, to use my quote from earlier, "the bottom line" was arrived at?

Well, I think there was ... the overriding priority, Senator, was to have specificity - what was actually going to be done. That was required initially in the drafting to improve market sentiment that Ireland would be able, in fact, to achieve the targeted deficit reduction. As things evolved, it was also necessary to be specific so that the terms of the programme of assistance would be equally clear. So that was the overriding concern. So there was flexibility within that framework but there was also a strong analytical base for choosing the things which were specified in terms of structural change, both on the revenue raising and the expenditure reduction side.

Were the ECB active in these negotiations ... this portion of the negotiations or were they more focused on the banking side of things?

Again, because I wasn't directly involved, Senator, I wouldn't like to mislead you with a guess but I know that they were particularly concerned, obviously, about the banking issues.

Okay. In Mr. Trichet's letter of 19 November 2010, he said and I quote, "If you don't do this, your banks will lose access to ECB and even national central bank support with disastrous consequences for your country." Do you have any insights, perhaps, from the Department of Foreign Affairs' colleagues or bank contacts on why this letter was sent, given that it would appear from evidence, the bailout process had at least formally commenced in the months leading up to November 2010?

Just to say, Senator, I don't recall the text of the letter being quite in that form but that was certainly the message.

I think it's ... it is a puzzle. As you say, the process of, at least, preparatory engagement was well under way and I can only assume that it reflected the sense of anxiety on the part of the ECB about both the extent of their exposure to the Irish banking system, but also the broader euro situation where the fragility, the spreads vis-à-vis peripheral member states and so on were creating a very worrying outlook. And I think the need to, in a sense, close off this particular source of instability was probably a very high issue of concern. I've no greater insight than that.

Just for the record, Chair, I have quoted verbatim from the committee document as opposed to ... I haven't paraphrased in any way. So if it's incorrect, it's incorrect here from me. So, then when we got the banking side of the bailout or of the agreement, was there ... whereas the Commission had been prescriptive only in part on two issues and suggested that you could usefully look at the minimum wage issue and the service agreements issue, did the ECB take a similar benign approach to the banking side and allow you to make the suggestions or was it a case that as, "We had the use of a quarter of their loan book'', as another witness put it, they were going to call the tune?

I think they, but not just the ECB, had concerns that this programme should provide a clear basis for rectifying, once and for all, the Irish banking problem, both through the availability of capital and through the restructuring of the system itself. There was, obviously, concern in the Irish side, the Government side, that the cost of taking on capital commitments should be kept to the minimum, and that the degree of capitalisation should provide only enough, and not more than enough, to meet all the, if you like, prudential and objective requirements. Obviously, there was a concern that the degree of capitalisation shouldn't produce negative outcomes, such as, for example, the desire to have a rapid deleveraging of the assets of the Irish banking system, which could produce significant losses and further capital requirements. So, there was certainly tension in the process around that issue and the outcome, as you know, was a combination of a direct and immediate or almost immediate, draw-down and capitalisation. And a contingency provision which would be brought into play following the prudential capital assessment.

Ann Nolan testified: " A number of lMF officials were strongly in favour of burning any unguaranteed and unsecured bonds in Anglo." Against that background, are you aware of any preparations for burden-sharing being made, even on a contingency basis, prior to entering negotiations with the troika?

I believe that those issues were being addressed in the Department of Finance. I can't say that I'm aware of this particular arrangements or preparations that were put in place. But I ... from the ... my recollection of the conversations, there wasn't a suggestion that this mightn't be feasible to do. So I assume whatever issues that were there were being addressed.

But would it have been looking at, kind of, legislation or whatever was needed to do this or-----

I imagine so but, I'm not privy to the-----

Okay, so you're not really aware of that?

No.

Okay. You mentioned in your statement that external advice tended to be - I don't know whether "limited" was the word - but it tended to be the Governor of the Central Bank and the CEO of the NTMA'. Isn't that correct?

Yes.

When we had Mr. Somers, the then CEO of the NTMA in here, he painted a scenario where ... I must paraphrase slightly that he spoke of, ''We were the ones with the money and that's what they wanted us for."

He also spoke of - on the night of the guarantee in question, and Deputy Murphy may have mentioned this - sitting in a room endlessly, for hours, but that this was the norm. And I think he recalled anecdotally an occasion where he was there waiting to be consulted on some issue of the day, as often was the case, and the people came in and said, "Oh, you're here? We're going to lunch, we'll see you after." In your experience should the NTMA have been consulted a lot more on the basis of their market, practical knowledge, on all of these issues?

Well, maybe to draw a distinction between the period leading up to the guarantee and perhaps immediately around that, I can't but believe, Senator, that the sense of an absence from the process was, was largely a function of the fact that they were abroad on the particular night, so I don't think there was-----

But they'd hardly all be abroad, I mean?

Well, I think the key ... sorry, I don't want to-----

Wasn't there about 160 staff or thereabouts?

But from the point of view of the interface with Government, I suppose the key figures were the chief executive and his deputy.

So-----

Not to diminish the worth of everyone else.

No, no, absolutely not, indeed. But was the practice in your term of office that of the 100 to 160, or whatever number of employees it is, that only two liaised with-----

No, I'm sure-----

As in the CEO and ... I don't know what Mr. McDonagh's role was. There was ... there's kind of three main positions there, isn't there?

Well, clearly Mr. McDonagh was in-----

Yes.

-----fairly regular contact with, and engagement with, the Department of Finance and I think there's evidence before the committee about the extent of that. The point I'm making is that in terms of formal engagements with the Taoiseach and members of the Government, it would have been the CEO or the deputy.

Was there an attitude around Government Departments generally that, "Look, we don't need those guys, don't ring them"?

I don't believe so. I mean, I think it's not a secret that there were issues about the ... in the relationship between the Department of Finance and the NTMA, as there always are between-----

Yes.

-----distinct organisations in the same sort of field.

But, with the benefit of hindsight, in practice, would this have meant that, to our detriment perhaps, we didn't consult some of the other 157 staff if the main three were outside of the country?

No, I don't believe that's the case, Senator. The, the CEO and others were present at briefings with the Taoiseach in the days before the guarantee. There was a very good relationship between Dr. Somers and Taoisigh directly. The NTMA was regarded across the system, and I believe in the Department of Finance in particular, as a very expert body, and its views were both sought and respected. So I wouldn't draw any inference from the particular conjunction, no.

So would you not agree with Mr. Somers's evidence that they were, kind of left, in rooms more than consulted? And I'm paraphrasing somewhat, I don't wish to lead.

I, obviously, accept that that's what Dr. Somers said, but being left waiting, dare I say, is not entirely unknown in public service, so I wouldn't regard it as-----

As you can testify this afternoon, Mr. McCarthy.

Quite so.

Absolutely, and can I say it's largely because of me, so I apologise. Just two other questions and I'll finish up, if I can. I've asked this to a lot of the secretaries of Departments that were in: can you outline if there were any requests from political outside bodies or otherwise, for reductions in expenditure or increases in taxation between 2000 and 2011? Other than from people like the IMF. I mean, I'm talking civil society, politicians, interest groups, unions.

I can't recall too many requests to have budgets cut, though there were cases where people sought independent sources of revenue through charging of one kind or another, with a ring fencing attached.

Give us an example of that, if you would, because you are the first to answer in the affirmative, of all your colleagues.

Well, I find it hard to recall specifics, but things like the introduction, or the increasing in charges for services, passports-----

Like plastic bag charge, for example, is that what you mean?

Not particularly, but charges for passports, that sort of thing-----

Who would have been looking for an increased charge for that, for example?

The agencies that would expect to keep the proceeds of the increased charge.

Who?

Well, a Department or an agency-----

Oh, but sure, they're State, like. I'm mean I ... I mean I'm talking about inside ... outside the State.

Oh outside, no.

All right, okay. Very finally then, there was some allegations made by the senior economist of the Central Bank that he had difficulty in getting his points across from time to time, on the basis that he felt that there were political and property interests on the board of the Central Bank. In your entire career, can you outline for us if, at any time, you felt there was an undue political property or business interest with the leg of the Governor of the Central Bank, the regulator or, indeed, Government?

I have absolutely no basis for, for believing that, Senator, from anything that I observed.

Okay. Thank you. Mr. McCarthy, I'll just deal with one or two issues and propose we might take a little bit of a break then. Mr. McCarthy, on ... Kevin Cardiff stated in testimony that a one-page draft guarantee document was produced on the night, this is the night of the guarantee, and it was copied and was circulated. So, I'll just bring up ... it's coming up there, Mr. Cardiff's statement, you'll see it there as the paragraph ... at the lower side of the page, it says, "In fact, the decision/press release went through, probably, a dozen drafts, each one mostly only a little different to the previous, before it was finalised." When this was discussed further with Mr. Cardiff, when he was before the inquiry, there was an engagement between Deputy Doherty and Mr. Cardiff which ... the transcript would read, Deputy Doherty speaking says, "Okay and the 12 drafts of the statement that you mentioned in your opening statement that were created, were any of them circulated or were they saved on your computer, or were they just ... was it an open file that kept continued to be edited?" and so on, to which Mr. Cardiff replied:

It was probably an open file. I was sitting at the computer of a guy called Joe Lennon who was one of the Taoiseach's advisers simply because his room happened to be next door. I think Joe or someone else was going in and out. I might have been in and out myself but that it was an iterative process.

Deputy Doherty then said "So none of those documents were ... none of those drafts were circulated at any time to the meeting ... any of [those] drafts?" To which Mr. Cardiff says: "Oh, no, they were all circulated at the meeting." So the 12 drafts found themselves in the room at every given stage. Do you know who produced this draft document right from the get-go and did you receive a copy and what eventually was done with the copy circulated?

Yes, Chairman, I think the origin of that was ... has to have been the draft which William Beausang referred to in his evidence, which he had received, I think via David Doyle, from an original draft in the Central Bank, and I ... I've seen that in material which was sent to me yesterday. I wasn't aware, until the evidence of William Beausang, that there was a draft generated in the Central Bank. There was a draft on, on the night, which was produced. But, it was produced, as I understood, from within the room, so to speak, or from Kevin, Kevin Cardiff's drafting. It did go through a number of iterations in discussion-----

But who put the first draft of the 12 manifestations of that draft onto the table, Mr. McCarthy?

I believe, for, like, to the best of my recollection, it would have been presented on the table by, by Kevin Cardiff, I think-----

Okay.

-----who also made the subsequent adjustments.

Okay.

The various iterations of them - and they did go through ... it did go through a number of iterations - I believe are still available on ... or, at least I would be surprised if they are not still available on the Department of the Taoiseach system.

Well, that's going to be my final question now, 'cause I'll come around to that, okay? So, can I ask you, can you outline the content of the original version? Was the first version an all-inclusive guarantee?

I can't recall, Chairman, the detail of the first version, but it did go through a number of iterations and the two, I suppose, substantive changes that arose and persisted. One was in terms of the giving of six months notice for the termination of the guarantee; that was removed. There was another, which I can't immediately recall, but in terms of the spread ... Sorry, the second change was the reference to all institutions being solvent, that warranty by the regulator.

They are technical aspects of the guarantee or maybe difficulties might arise, it would have to be clarified out and they would be worked back and forth as the draft is evolving over the course of the night. But the substantive part of the statement is whether the banks were going to be included in it or totally included or as not, which I would imagine would be a very significant moment in that draft at whatever stage. So at what stage do you recall that actually being in there?

My recollection, it was quite late in the meeting before a text of that kind came on the table, much later than ... I think William Beausang referred to 9.20 p.m. or 9.30 p.m. as being when he received this draft. My recollection is that it would have been considerably later than that before there was a text on the table.

Okay. Coming back to my final question on this - can you explain why it would appear that a copy of this document does not appear to have survived a meeting?

Well, I may be wrong in this, Chairman, but my recollection is that the various stages of the drafting - certainly the later ones from the time it appeared on the table - would still or should still be in the system because, apart from their drafting, my recollection is that they were e-mailed to the Department of Finance press officer, who would, ultimately, have been the person issuing it. And I recall, vaguely, seeing documentation which, I think, might have been being put together for the Nyberg commission, which had that material so unless I am misremembering, I think there should be the possibility of recovering at least some of them.

Have you seen a draft of that document or one of the 12 variations of it since that night?

Since the night, yes. As I say, before I retired...

As to how recent have you seen one of those drafts?

I would say I saw them before I retired.

Which was when?

2011.

Okay. Was it one draft or a number of drafts that you saw?

From memory, Chairman, I think there were a number and I think it was in the context of the Department putting together material for Nyberg.

And on the basis of - bearing in mind it is recollection - where did you see those documents?

Well, within the Department of the Taoiseach but------

The Department of the Taoiseach.

Yes.

Okay, right. Thank you.

Excuse me, Chairman, can I ask for a clarification?