The Central Bank Governor John Hurley has said the Government decision to guarantee depositors and debts at Irish financial institutions was taken 'to protect the stability of the domestic financial system'.
He said events came to a head on Monday when the supply of funding to the Irish banking system was seriously threatened due to the drying up of funds on international money markets.
'At that time, I had to inform the Minister that the risks to financial stability were becoming unacceptably high with knock-on effects for the wider economy,' Mr Hurley said.
'A major consideration was that the highly concentrated nature of the Irish banking system created a high risk of contagion. Decisive action to protect the stability of the economy and its financial system was needed,' he added.
He said the main issue was not bad debts or losses from loans, but an 'unprecedented shortage of liquidity' on financial markets.
The Governor said the Central Bank and the Financial Regulator would be advising the Government on how the guarantee scheme should work in practice. He said the prices, terms and conditions involved would be critical to ensure stability at minimum cost to the taxpayer.
