When the Central Bank conducted its first examination of Guinness & Mahon bank (G&M) in 1976 it discovered not only that it was involved in dubious transactions but also that it was being badly run.
In a very clear statement of his views, Mr Adrian Byrne, the current head of banking supervision at the Central Bank and one of the inspectors who examined G&M in 1976, said the directors and management were "not the most competent".
The bank was making small profits, was too heavily involved in property, and had inadequate capital. Any move to have one or more of the directors removed could have created a run on the bank and caused it to crash, and preventing banks from collapsing was the primary function of the Central Bank.
The late Mr Des Traynor, whom the Central Bank believed to be the main force behind the dubious activities of G&M, assured the Central Bank in 1978 that the offshore activity would be reduced. Mr Byrne said the bank trusted Mr Traynor to honour this undertaking. Mr Traynor was a highly regarded businessman at the time, whatever about his competence as a banker.
Mr Traynor's commitment was accepted despite the fact that the investigators had encountered resistance from the G&M directors when examining the offshore dealings and an unusual level of reluctance on the part of ordinary staff to discuss the bank's affairs informally. It was difficult to prove anything in cases of a "conspiracy", Mr Byrne said.
We now know Mr Traynor was already misleading the Central Bank about the extent and nature of the offshore activity. In the 1980s the business was to continue to grow, but without the Central Bank becoming aware of this. Mr Traynor told the Central Bank in 1982 that the total for loans backed by offshore deposits had fallen from £5 million to £1.9 million. Both figures were incorrect.
The existence of loans valued at millions of pounds was hidden. Among the loans the Central Bank was not told about were those to a company of which Fianna Fail TD Mr Denis Foley was a shareholder, and a loan to former EU Commissioner Mr Peter Sutherland.
Interestingly, however, the Central Bank was told about a loan to Mr Ken O'Reilly-Hyland which was backed by money in the Cayman Islands. Mr O'Reilly-Hyland was at the time a director of the Central Bank.
Mr Byrne said he would have passed the fact of Mr O'Relly-Hyland's loan on up the line.
Mr Timothy O'Grady Walshe, a former general manager of the Central Bank, said the fact that a board member was listed as availing of an offshore arrangement causing concern to the Central Bank was not itself a matter for the bank.
Mr O'Grady Walshe made some observations about the late Mr Traynor. He said that when he felt he was coming under pressure it would be in Mr Traynor's character to launch a counter-attack.
He felt Mr Traynor was tough, "very clever, very skilful", and that he would "have exploited the limits of the law to the utmost", but that he would not have gone outside the law.
He felt that if Mr Traynor was alive he "would make a good job of proving that what he was doing (in the late 1970s) was within the law".