Ireland should have been allowed to burn senior bondholders, particularly Anglo Irish Bank bondholders, a senior adviser to Finance Minister Brian Lenihan has claimed.
Alan Ahearne told the Banking Inquiry he believed Ireland "should have been allowed to discount senior bondholders, in particular the Anglo bondholders", but fears of contagion by Europe had stopped this.
Mr Ahearne, adviser to Mr Lenihan from March 2009 to March 2011, also said the minister was annoyed about the phone call made by Central Bank governor Patrick Honohan to RTÉ's 'Morning Ireland' on November 18, 2010 to confirm an IMF bailout.
And he said Mr Lenihan had an open mind as to whether a small "good bank" could be carved out of Anglo.
"The priority was deleverage and de-risk the bank without damaging the rest of the banking system," he explained.
The Professor of Economics at NUI Galway said the establishment of Nama had played a critical role in restoring financial stability in Ireland but it was not and could not be expected to be "a magic bullet to restore damaged banks to full health".
Earlier, consultants from PricewaterhouseCoopers defended their very low valuation of financial losses from the banking crash.
Partner Denis O'Connor blamed the banks, saying: "I think the problem is not in the accounting, the problem is in the judgments relating to the lending".
PwC was brought in by Financial Regulator Patrick Neary on September 18, 2008 for "urgent assistance" to assess the size of the crisis.