In his first lengthy response to the crash, he defended his Fianna Fáil-led government which “worked tirelessly to do its duty in the most difficult circumstances”.
However, while he vowed not to “pass the buck” and to accept responsibility for his role as leader of the country during the tumultuous period, he pointed the finger squarely at Irish lenders.
“It is important to recognise that in the pre- crisis period there was reckless lending by individual banks, made worse by a bonus culture incentivising short-term gains,” he said.
Referring to a report by Central Bank chief Patrick Honohan, Mr Cowen said “the primary responsibility of the crisis rests with the banks themselves”.
The former Taoiseach also accused Irish and other European banking regulatory systems of having “failed completely” to see the extent of the looming crash.
On his late-night decision to bring in a blanket guarantee for six banks at the height of the financial turmoil in September 2008 — which will end up costing the state €64bn — he said it was the “least worst option”.
“It was clear that we were on our own,” he said.
“We had one shot at it. If we did not get it right, Ireland, we were told, would be set back 25 years. We had to go with the best information available to us at the time.”
He added: “No option looked good. It was a case of taking the least worst option available.”
The inclusion in the blanket guarantee of rogue lender Anglo Irish Bank and Irish Nationwide, which have both since been wound up at huge cost to the state, sparked particular controversy.
However, Cowen said: “Had they collapsed, the cost to the state and the economy would have been catastrophic because of the consequent impact on the whole banking and economic system.”
Speaking before the Oireachtas Banking Inquiry, a parliamentary investigation of the economic crash, Mr Cowen said he wanted to make high-ranking investors in the banks share the losses.
However, he said he was threatened that Ireland’s EU/ IMF/ ECB bailout would be pulled if the top investors were forced to take a hit as well.
“We were left in no doubt that burning senior bondholders would mean no EU/IMF programme. It was one or the other,” he told the inquiry.
Mr Cowen said his government decided it was better for Ireland to go with the international rescue package.
“I want to say to the Irish people that the government I led dealt with the financial crisis to the very best of its ability,” he said.
“I know the crisis brought with it difficulties and problems of all kinds to many people throughout the country, and as head of the country I accept full and complete responsibility for my role and our response to that crisis.
“I’m sorry that the policies we felt necessary to put in place in responding to the national crisis brought with it hardship and distress to many people,” he said.
“The human cost of dealing with this crisis, which we sought to mitigate as best we could, was the most difficult aspect of the decision we had to make.”