Former Finance Minister Brian Lenihan was stopped from burning the junior bondholders on the night of the Bank Guarantee.
Central Bank Governor Prof Patrick Honohan told the Banking Inquiry yesterday that the late Mr Lenihan was not the senior politician in the room that night.
He said Mr Lenihan told him he argued strongly not to cover the subordinated debt.
He had backed down, he said, with the expectation that the two institutions would be nationalised by the end of the week.
Mr Lenihan was also prevented from moving immediately to nationalise Anglo Irish Bank and the Irish Nationwide Building Society (INBS).
While noting that the Taoi-seach and the Attorney General were present, Prof Honohan repeatedly refused to name to the inquiry anyone who might have overruled the minister.
Instead, he explained that it was probably the weight of the advice around Mr Lenihan that had led to the ultimate decision of a banking guarantee.
In his first of two appearances before the inquiry, Prof Honohan said that from conversations with others he understood Mr Lenihan thought that INBS and Anglo Irish Bank should have been nationalised there and then.
He added that his own view was that Anglo Irish Bank should have been allowed to fail, but not on the infamous night.
It should have been delayed from that Tuesday night to the following weekend to give a few days for an orderly wind-down and avoid contagion.
Earlier in the session, Senator Sean Barrett was blocked from asking Mr Honohan about the €7bn back-to-back deposits that flowed between Anglo Irish Bank and Irish Life & Permanent at the peak of the crisis.
Chairman Ciaran Lynch intervened and said this matter was part of a criminal inquiry.
Prof Honohan agreed with a suggestion by Deputy Joe Higgins that the "property bubble had been blown to extremes by the scramble by the banks for super profits".
"That's right," he said.
From interviews with banks, however, he said that he thought a lot were "shattered" by the impact on the less well-off.
"They feel something has gone badly wrong but they are not sure why and not sure what they could have done differently," Prof Honohan said.
The guarantee did not protect the poor, but it was an attempt to stabilise the economy.
The inquiry continues.