The former head of Ulster Bank told the banking inquiry that it lost a significant amount of deposits immediately after the guarantee.
Cormac McCarthy said that customers moved money of their own accord and competitors also persuaded depositors to transfer.
He said they heard about the guarantee from the news on 30 September.
He said he was surprised because he had spoken to the Financial Regulator twice in the previous two weeks.
Mr McCarthy said that they were later invited to join the guarantee but the terms were impossible for them.
Ulster Bank is part of the Royal Bank of Scotland and was not covered by the Irish bank guarantee. It has received £14.9bn from RBS between 2009 and 2013.
RBS was bailed out by the UK government in October 2008.
Mr McCarthy said they loaned too much money to too many people.
He said they were not cavalier but ill-judged and he deeply regretted this had happened.
He said that at one stage NAMA write downs were the only indication of updated asset values in an illiquid market.
But the market then moved and there were further write downs on the Ulster bank balance sheet.
Inquiry chairman Ciaran Lynch asked about the bank's introduction of 100% mortgages, tracker products and longer mortgage scheduling and whether anyone in the bank saw a problem.
Mr McCarthy said that at the time all the indicators were positive but in hindsight, they made mistakes.
He rejected the suggestion that they were trying to grow the loan book as fast as they could.
Earlier, the head of Bank of Ireland told inquiry the bank was overexposed and overly dependent on lending to certain sectors.
CEO Richie Boucher said the bank thought its loans were manageable and diversified but it took too much risk.
Mr Boucher also said Bank of Ireland was asked to provide €4bn to Irish Nationwide but refused, saying it was uncomfortable taking on that exposure.
He said that he understood there would be a "systemic guarantee" at midnight on the night of 29 September 2008.
His evidence contrasts with testimony by the former chairman of AIB Dermot Gleeson, who said he believed only four banks would be covered by the guarantee on the night.
Mr Boucher said he had been annoyed by rumours among his competitors that Bank of Ireland had sought a guarantee for itself.
He said the bank did not need a guarantee but may have needed one if turbulent market conditions continued.
Mr Boucher said Bank of Ireland "probably followed the market too much".
He said that the company did not sufficiently report the concentration risk of its lending to the board.
Joe Higgins TD asked him about writing to Dublin City Council to recommend developer Sean Dunne's planning application for the former Jury's site in Ballsbridge.
Mr Boucher said it was "one of the most stupid things I have done".
Mr Boucher also said that he told the Central Bank in early September 2008 that Bank of Ireland could not provide liquidity support to Irish Nationwide as requested.
He said he had been asked to "look at" Irish Nationwide in 2006 and he met its then CEO Michael Fingleton.
He said he reported back to his CEO, Brian Goggin, that there "was not opportunity" for Bank of Ireland.
More detail has been given on this matter in a written statement, which was not read out at the inquiry but has been published.
In it Mr Boucher said that on the weekend of 6-7 September 2008, he attended meetings at the Central Bank to discuss potential liquidity support from Bank of Ireland and AIB for Irish Nationwide Building Society (INBS).
He said BoI did not feel it was able to provide the support requested.
He said he recalled being shocked and shaken by the lack of information available to the executives of INBS and the Central Bank on the liquidity position of INBS.
Mr Boucher said that he became group chief executive in February 2009.
He said he was previously chief executive of retail financial services and was not involved in any interactions with the State or with the Central Bank when a bank guarantee was discussed prior to 29 September 2008.
On the night of the guarantee, he said he recalled that the group CEO made contact later by phone conference call to advise that the government had decided to provide a systemic guarantee for all deposits and liabilities.
There was some discussion on whether the guarantee would cover subsidiaries and what the definition of liabilities was.
Mr Boucher said he could not fully recall whether it was during that call or in a further later call from the group CEO which advised that certain subordinated liabilities were also to be covered by the guarantee.
He recalled some surprise at this and the feeling was that this might not necessarily suit Bank of Ireland as there was a view that Bank of Ireland needed to strengthen its capital.
Mr Boucher said that he bears collective responsibility for strategic mistakes and errors of judgement made.
He said that while these were not as catastrophic as others, they were serious, negatively affected Bank of Ireland's investors and the bank received State aid from taxpayers which has since been repaid.
He said that while property lending as a proportion of the group's balance sheet was not considered disproportionate, the actual quantum of property lending was too large, even where it was considered to be diversified between Ireland and the UK.
He said he did not believe that incentivisation/remuneration was amongst the most significant contributory factor to the mistakes and errors of judgement that Bank of Ireland made.
He said he understood then, that the system was in more trouble than he had envisaged and it was very, very serious.
There was no discussion of Anglo at that meeting at which AIB was also present at the meetings on 6 and 7 September.
Fianna Fáil's Michael McGrath asked whether a decision had been made at corporate level that the bank was in favour of including subordinated debt in the guarantee and Mr Boucher said there was no strategic decision and he was surprised.
He was opposed to the inclusion of dated subordinated debt.
Mr Boucher was asked about his famous quote at an IBEC conference about the boom that it was a "wild party and even good girls got into trouble".
He said he had been told he used too much jargon and was trying to explain in ordinary terms, but said he regretted the analogy.
Regarding the rescue of the bank by the taxpayer he said: "I have said sorry but I hope over the past six and half years I have matched my actions with words."
On the night of the bank guarantee he said "I wasn't on the pitch, I was in the dugout", in reference to not being in Government Buildings.
Sitting watching Mr Boucher give testimony today were Brian O'Donnell, the developer evicted from Gorse Hill in Killiney in Dublin, and Jerry Beades of the New Land League.
Nexus Phase
Today's hearings form part of the 'Nexus Phase' series involving senior bankers who had roles during the crisis.
It is focusing on three broad elements: banking systems and practices; regulatory and supervisory systems and practices; and crisis management systems and policy responses and how these three elements interacted with each other.
