The late Mr Lenihan, together with the Bank of Ireland (BoI) and Allied Irish Banks (AIB), believed that Anglo — the initial source of the banking crisis — should be either liquidated or nationalised.
And to prevent the four other main banks being threatened following the fallout, AIB and BoI made a case for the State to cover their debts, and any debts they might incur over the following two years, into perpetuity.
The details are contained in the statement made by Kevin Cardiff, the former head of the Department of Finance who will be giving evidence to the hearing on Thursday.
His 380-page report has been leaked to the media over the past few days. He has denied leaking it. It has been with the 11 members of the Oireachtas for the past two weeks.
The committee meets today to discuss the leaks as Fianna Fáil member Sean Fleming said they could undermine the inquiry. Under new rules, an individual could be jailed for five years and fined up to €500,000 for the leaks.
Responsible for financial services in the department, Mr Cardiff was a key person in the bank guarantee negotiations, and is expected to fill in many of the missing details of the night of September 29/30, 2008, while his own performance and judgment will also come under close scrutiny.
Mr Cardiff is expected to shed light on reported differences between then-taoiseach Brian Cowen and then-finance minister Brian Lenihan on the night and clarify that it was to do with whether or not to include Anglo in the guarantee.
Following a private conversation between the two men, Mr Lenihan dropped his reservations, Mr Cardiff’s statement says.
His version is supported by evidence given by the former chair of AIB, Dermot Gleeson, who told the hearing he believed Anglo and Irish Nationwide would be nationalised or liquidated and they would then look for a blanket guarantee to protect the four other banks.
A note made by Mr Gleeson in the days following the guarantee and read to the inquiry said that AIB furnished an extensive formula on the guarantee to cover the four main banks, excluding Anglo, which he brought to the meeting. He said he left the meeting before the final decision was made and was surprised when, the next morning, he discovered that it included Anglo.
The document appears to be missing, as AIB said they could not find it. Mr Cardiff is likely to be asked about it as his evidence says that he was given it when preparing a press statement about the State’s guarantee.
But when he read it, his 380-page statement says, he noticed that it committed the State to more than had been agreed and which would benefit the banks who “would be laughing at us”.
His evidence says that when he pointed this out to Mr Cowen, he told him to redraft it to reflect the decision taken that the guarantee covered existing debts only and just for two years.
The former secretary general of the Department of Finance said in his statement that the decision was not a badly thought through reaction but well debated, having consulted a range of experts and being in the air for some time.
The fact that the global economic crisis worsened made a bad Irish situation much worse in a way that could not have been anticipated at the time.
Mr Cardiff, who is now a member of the European Court of Auditors, paints a comprehensive picture of the fateful night of the guarantee covering the banks’ €440bn liabilities, but also of the events leading up to the country’s economic crash, and the bailout negotiations two years later.