Government faced 'disaster' on the night of bank guarantee
The Irish government faced "certain disaster" and had a single opportunity to make a decisive intervention on the night of the bank guarantee, according to former government secretary general Dermot McCarthy.
Mr McCarthy, who was present on the night, said the decision to stabilise liquidity and secure the banking system "would have no certainty of success, but the alternative was certain disaster".
He told the Banking Inquiry that "a guarantee to support the liquidity position of the banks was considered as the option most likely to stabilise the situation".
Taoiseach Brian Cowen, he said, was presented with a very stark picture, with the necessity to make a rapid decision which could only be a judgement call.
The former secretary general, who served from January 2000 to July 2011, said his regret at what happened during the banking crisis was "tempered only by my belief that I performed my duties to the best of my ability".
On the night of the guarantee he said it was "made clear" that no European or European Central Bank (ECB) initiative was in prospect which would address the immediate crisis in Ireland.
Discussions with the representatives of AIB and Bank of Ireland that night confirmed the gravity of the situation.
The option of nationalising Anglo Irish Bank was considered, but "it was concluded that such action could have more negative than positive effects on market confidence" and the decision could be taken at a later date if appropriate.
It would have been preferable that night, said Mr McCarthy, if senior members of the National Treasury Management Agency had been present.
However, their views had been made known, particularly their view that Anglo should be nationalised.
Mr McCarthy said that on November 12 Mr Cowen had been telephoned by the President of the European Commission Jose Manuel Barroso, who expressed concern about the risk to international financial stability posed by the fragility of the Irish situation.
"ECB concerns at the level of its exposure to the Irish banks were conveyed" he said.
"By early November 2010 the ECB expressed its strong view that the Irish Government should apply for European financial assistance."
Department of Finance officials travelled to Brussels for exploratory discussions on the parameters of a possible Programme of Assistance.
"The tentative nature of these discussions reflected concern that any such programme could include unacceptable terms, such as changes to the Irish corporation tax regime," he said.
The situation was reviewed by the government, he added, and the text of a four-year recovery plan was approved.
On bondholders, Mr McCarthy told the inquiry the terms of the guarantee precluded burden sharing with bondholders during its operation.