'IN MARCH 1985, the Government was forced to take over the Insurance Corporation of Ireland, a subsidiary of AIB, and bail out the bank after the insurer started incurring substantial losses on high-risk insurance policies.

The bank had spent £86 million in both buying the insurer outright in 1983 and investing in the business in the face of spiralling losses and massive unknown liabilities.

The bank told the Garret FitzGerald-led government on March 8th that it could not afford to keep pumping money into ICI.

The government was advised by the Central Bank and senior civil servants that future liabilities and claims on ICI's insurance policies could bankrupt AIB, destroy international confidence in Irish banking and damage the country's economic fabric.

Dr FitzGerald was alarmed that loan notes to AIB could be withdrawn if any part of the bank or any subsidiary became insolvent. "That could bring down the bank and finish the whole system," Dr FitzGerald said two years ago.

"This was a mad way to have arranged a banking system as vulnerable as that. The bank put it to us that if we didn't bail them out, they could go under."

The State purchased ICI for £1 and assumed its debts.