The Bank Guarantee should not have included Anglo Irish Bank and the Irish Nationwide Building Society, Central Bank Governor, Patrick Honohan has told the Banking Inquiry.
These two should have been dealt with separately “through immediate nationalisation”, said Prof Honohan.
Subordinated debt and existing senior term debt should also have been excluded, he added. However a guarantee in some form would still have been necessary.
In his third appearance before the Inquiry, the Governor said the focus on the night of the Guarantee had been “excessive”.
Much of the losses and costs for the Irish people at that stage “had already been ineradicably incurred”.
The EU-IMF loan had proved to be “a successful policy move for Ireland, limiting the need for fiscal austerity” and underpinning a “relatively rapid return to confidence” despite the risks and pressures involved at the outset.
“Successive Governments’ adherence to the Programme, in difficult political circumstances, helped restore Ireland’s international reputation for disciplined macroeconomic management, a reputation essential for sustained recovery of employment and incomes,” he stressed.
Prof Honohan felt it was too soon to have a definitive estimate of the cost of the crisis “with so many non- performing and other questionable bank loans still awaiting cure or collection, with a block of NAMA assets still awaiting sale, and with a large part of the ownership of the banking system still in the hands of the Government”.
The losses of Irish banks and foreign banks operating here amounted to a figure well in excess of €100bn.
While the boom brought some “transitory prosperity” even to those not directly involved in construction or property, the bust threw many out of work and imposed losses on many Irish people other than those through bank loans.
The Governor said the net cost of the Bank Guarantee decision was “not a question susceptible of any precise quantification”
With a more limited guarantee “all in all, a possible net economic saving in the area of €2-€10bn could be imagined, but surely no more than that.”
He concluded that by September 2008,”well over 90pc of the net economic cost the Ireland of the boom and bust had become unavoidable.”
Moving to the present situation, Prof Honohan said: “The banks have now got reasonably effective systems in place to deal with collection and restructuring on the scale needed.”
He stressed, however that “they did not introduce adequate systems until chivvied by the Central Bank from late 2011”.
An increasing number of loan restructurings, designed to be fully sustainable, had been agreed.
"Compliance with the restructured payments schedule is high, though deeper restructuring would arguably increase assurance that the borrowers would not fall again into arrears and would reduce debt overhang in the economy at large”.
Despite all of the efforts, including court repossession proceedings “there is still insufficient engagement between borrower and lender in a large number of cases.
“The resulting lengthy delays leave the borrowers in a limbo of over-indebtedness and hamper both the borrowers’ and the banks’ ability to put the crisis behind them,” he said.
Even before the Oireachtas Banking Inquiry came into being, word of Taoiseach Brian Cowen overruling his then Finance Minister Brian Lenihan on the night of the Bank Guarantee in September 2008 had done the rounds.