Irish Central Bank Governor, Dr. Patrick Honohan. He was a professor of economics at Trinity College, Dublin, until his appointment in Sept 2009.

The Governor of the Central Bank Dr Patrick Honohan, on Tuesday gave testimony to the Joint Oireachtas Committee on Economic Regulatory Affairs and said the "failures of the Irish banking system have rocked the economy and the public finances, with severe effects impacting almost all members of society." He called for a public inquiry into the causes of the crisis, similar to the investigation of security failures by the US Congress in the aftermath of the 9/11 terrorist attacks in the United States.

"It is time to start thinking how we might learn the lessons about our society that an understanding of the crisis can give us," the former professor of economics at Trinity College said.

"We understand some of what happened, but some of it is still hard to understand," he said and added that at the Central Bank "we have, I believe, taken important lessons on board and are making significant improvements in the way financial regulation and financial stability work is conducted."

The Governor said he expects that the Oireachtas will, in time, decide to authorise some form of inquiry to try to understand the deeper, underlying causes of this crisis so that wider lessons can be learnt for the future. In considering how best to do this, he suggested that new models need to be explored.

"The crisis is not simply a question of discovering who did what and who knew what," he said. "Uncovering the deep roots of the crisis will require expertise and broad social scientific understanding more than merely forensic skills."

The Governor told the committee nobody could deny there had been“a serious failure of the regulatory system.”

“The regulation should have been more proactive in preventing the rapid growth in lending,” he said.

While saying that the State's "bad bank" NAMA (National Asset Management Agency) would "work on its own terms", Dr. Honohan said the amount to be paid to the banks as subordinated loans -- which include an element of risk-sharing and come in at around €2.7bn -- should have been as much as three times more.

He agreed that State ownership of one or both AIB and Bank of Ireland, may rise to 50% after they incur losses and require additional capital, following the discounted sale of a combined €39.5 billion of their loans to NAMA.

He said the two banks would need significantly more capital in addition to the €7 billion injected by the State this year but the Central Bank could not yet determine the figure required until each NAMA loan was valued.

Opening statement