Former taoiseach Brian Cowen has denied he “overruled” Finance Minister Brian Lenihan on the night of the Bank Guarantee.
Mr Cowen told the Banking Inquiry today that at the private meeting between the two that night, after which Mr Lenihan changed his mind, “there was no question of our conversation being in any way adversarial or confrontational”.
Mr Lenihan had been against a blanket guarantee for six banks before that meeting but subsequently changed his mind.
“We were talking the issue through. Both of us were deliberating with each other and striving to find the best course of action for the country at this point,” Mr Cowen said.
He said he had explained his reservations to Mr Lenihan and “reassured him that nationalisation (of Anglo and Irish Nationwide banks) was something that we could not rule out in the future”.
He said he told the Finance Minister it would remain an option.
“I also told him that a time-limited guarantee seemed to me preferable than giving an open-ended guarantee which a full nationalisation would entail.”
When the main meeting resumed “the representatives from the banks confirmed that the position was every bit as bad as the Government believed and immediate action was necessary to address what was happening”.
“We were informed the money markets had decided that Irish banks were to be avoided.”
Mr Cowen added that the four pillar banks were concerned about INBS and Anglo and without stating it openly “it was clear to me they wanted those two institutions nationalised and a guarantee to be provided for their institutions”.
He said while these two banks were finding it difficult to get money to keep going, “there was certainly no indication from either bank that they felt they were in any way exposed to the extent and level that they believed the other institutions were”.
The former Taoiseach said he did not comment on the presentation made by the banks but said they would consider their views and they left the meeting.
It was clear at this point that “all the banks were running out of cash and depending on the run rate, it could now be days rather than weeks”.
“The liquidity problem was the essential initial hurdle that had to be jumped for us to have any chance of getting through the first stage of the crisis,” he said.
“The market was going to react to whatever initiative was put out there: our collective hope was that it would react the right way.”
Mr Cowen told the committee: “Eventually I put it to the table that it seemed to me that a full guarantee option provided the best prospects of addressing the urgent liquidity problem and of sending a clear message that Ireland was standing behind the financial system which would be understood by the markets.”
He stressed how “we hadn’t much room to manoeuvre”.
“It would have the benefit of being an impactful measure which could solve the immediate and pressing problem,” he added. “It is my recollection that I then asked everyone could we run with a guarantee only approach in principle.
“There was agreement on that. Further details would now have to be worked out,” he told the Inquiry.
Mr Cowen added it was now clear that there were “significant weaknesses in the banks’ loan books and capital adequacy” and the Department of Finance did not have an oversight role in this area at the time”.
He said the relationship between the financial institutions and Financial Regulator “was far too trusting”.