The Government had to provide an all encompassing guarantee for banks to counter the effects of a rapidly evolving crisis during the day of September 29 2008, the head of the Department of Finance has told politicians. Kevin Cardiff was giving evidence to the Dáil's Public Accounts Committee.
After the release of documents last week it emerged the Government had options other than a guarantee. Among them was nationalising Anglo and Nationwide and offering €20 billion in funding to banks.
Today the head of the Department of Finance Kevin Cardiff said things were changing quickly on the day of the guarantee.
Instead of going with alternatives proposed by advisors Merrill Lynch, Mr Cardiff said the Government opted for an all encompassing approach to get through the week. He said the context was banks collapsing across Europe as share prices fell, and Irish banks could not even receive quotes to borrow money.
He said Anglo would not have been able to legally operate on September 30 if the guarantee had not been introduced.
Detailing the cost of the advice on the banking crisis, he said Merrill Lynch had received €7m, Rothschilds €1.4m, KPMG €2m, PricewaterhouseCoopers €750,000 and Arthur Cox €7m - a total of over €18m.
In response to a question from Labour's Róisin Shortall, Mr Cardiff said that, as late as 7pm on the night of the bank guarantee, the Government was still considering steps which included nationalising Irish Nationwide and Anglo Irish Bank.
He also said the amount guaranteed - excluding customer deposits already protected - had fallen to around €270 billion by the end of March.
Asked about the documents released to the PAC, he said there were no submissions from AIB and Bank of Ireland setting out their stalls.
Mr Cardiff said there was no separate meeting with AIB and BoI on the day the guarantee decision was made. He said it was the two banks who suggested their meeting with the Taoiseach and Finance Minister. He said officials from the Central Bank, the Department, the Financial Regulator, the Attorney General and others were present.
Banks' solvency 'not the main focus' in 2008
The secretary general also told the PAC that in 2008 the department was preparing documentation and draft legislation relating to nationalisation of a bank and a building society. But Kevin Cardiff said this was simply part of contingency planning. He also told the committee that banks' solvency was not the main focus at that time.
Mr Cardiff also said that it was only in the third quarter of 2008 that strong signals of falling property values emerged. He said there was no information to suggest that this would have progressed to a catastrophic scale.
Mr Cardiff said the department was satisfied it was receiving a good picture of financial flows, but there was uncertainty about financial strength. He said there was no evidence that Anglo was insolvent, and the bank was regarded as being able to meet funding issues, at that time.
He added that if Financial Regulator Patrick Neary had said there would be a property crisis and a banking crisis coming, the Department would have reacted appropriately.
Mr Cardiff said it was clear there were problems at Anglo, but there was not a picture available at that time that any of the institutions had such difficulties that they would burn through their capital.
In response to a question from Labour TD Pat Rabbitte about an upbeat Anglo Irish presentation to the department on September 18, Mr Cardiff said while there would have been 'self-deception' among management at Anglo and some other institutions about how much trouble they were in, some of the assessments had been 'dishonest or disingenuous'.
He said Anglo had continued to be over-optimistic for some time after the guarantee, even suggesting that the bank could raise private capital.
Asked whether the department had been dictating the tone of advice given in economic commentaries by the Central Bank, Mr Cardiff said the system was based on the independence of regulators and the Department of Finance did not give instructions to the Central Bank on its commentary.
But he said the bank did pass material to the Department for comment and it would comment if it thought any of the information 'unhelpful or inaccurate'.
