The situation was revealed during a five-hour meeting of the banking inquiry which also heard that banks tried to impose a far more wide-ranging guarantee which would have left them “laughing at us” and that Ireland was “pushed quite hard” by the ECB into the November 2010 bailout.
Speaking at the inquiry after his evidence was leaked days earlier, the former secretary general of the Department of Finance, Kevin Cardiff, gave the clearest picture yet of what happened in the lead-up to and on the night of the bank guarantee of September 29, 2008.
Mr Cardiff, who was head of the department’s banking unit before becoming secretary general from 2010 to 2012, said Mr Cowen set up a “secret” group to examine a bank guarantee and other options while he was finance minister and before becoming taoiseach on May 7, 2008.
Mr Cardiff said this information was kept private as officials did not want to cause alarm, but was known by both Mr Cowen and finance minister Brian Lenihan as the economy crashed.
The group met with former Anglo Irish Bank executive Tiernan O’Mahoney and chairman Seán FitzPatrick, and Irish Life and Permanent chairwoman Gillian Bowler, but Mr Cardiff said he could not recall if the meetings were specifically about Anglo Irish.
During the same period, Mr Cardiff said high-profile billionaire businessmen and bankers were privately lobbying for a bank guarantee. He said that as early as April 2008, Mr FitzPatrick contacted the then governor of the Central Bank, John Hurley, to suggest “some form of a guarantee”.
On May 23, 2008, an individual who is only referred to as ‘DD’ in Mr Cardiff’s notes suggested a “broad guarantee”. Former finance minister Charlie McCreevy said that “some broad statement” of support was needed.
That July, Mr Cardiff told the inquiry he met with individuals from Davy Stockbrokers who said, “look lads, if this gets worse you’ll need a guarantee, so why not do it anyway”. Billionaire businessman Dermot Desmond told Mr Hurley: “I’m in this market, I think you might need to examine this guarantee thing.”
Ms Bowler of IL&P and Brian Goggin of Bank of Ireland then suggested the idea, before former ECB president Jean-Claude Trichet’s “advice” days before September 29, 2008, that Ireland needed to save its banks.
On the night of the bank guarantee, Mr Cardiff said both he and Mr Lenihan opposed including Anglo Irish and believed the institution should be nationalised.
Mr Cardiff, who agreed he was the “last man standing” on the issue, said he also wanted a “political” guarantee which was not legally binding as there was a “real” risk of a “good old- fashioned” run on Anglo Irish and IL&P, which was running out of money.
However, while saying he did not recall Mr Cowen using the phrase “we’re not fucking nationalising Anglo”, Mr Cardiff confirmed the then taoiseach wanted a blanket guarantee.
He said alternatives were drawn up, including nationalisation, emergency liquidity assistance, and swapping bank shares for State ones to allow institutions to access ECB support. However, these were not accepted.
Mr Cardiff also confirmed that AIB and Bank of Ireland sought a wider bank guarantee than was agreed, contradicting previous evidence by the banks.
He said a costed draft deal the banks brought with them on September 29 wanted existing long-term borrowings to be covered for their “lifespan” and for borrowings which took place after the guarantee but in 2008 to also be included. He said this was shot down as its wording would have cost billions of euro more.
He said the ECB was kept informed of the plan, but added that Mr Lenihan did not always give cabinet information as he “did not trust” certain members, hampering decisions.
Mr Cardiff also said the guarantee gave Ireland “a year to prepare” for the November 2010 bailout, adding to previous claims that the deals were linked.
He said Ireland was “pushed, quite hard” by Mr Trichet of the ECB, who did “far more than” just advise that government funding could dry up. “We knew what they were saying,” Mr Cardiff said.
He said former IMF president Dominique Strauss-Kahn wanted to allow senior bondholders to be burned in 2010 and again in 2011. The ECB rejected the move, with the current Government not pushing the issue as it did not want to “alienate” the ECB.
Mr Cardiff will return to the inquiry next week.