Decision taken as bank shares plunged to 25-year low

MEETINGS: CRISIS MEETINGS between senior officials throughout Monday, against a backdrop of plunging share prices in Irish banks…

MEETINGS:CRISIS MEETINGS between senior officials throughout Monday, against a backdrop of plunging share prices in Irish banks, led to the late-night Government decision to provide an unprecedented State guarantee for Irish banks.

Monday morning started with news that Dutch financial giant Fortis, UK mortgage lender Bradford Bingley and German commercial property bank Hypo Real Estate had all been rescued with state bailouts.

This confirmation that the financial crisis had arrived in Europe with a bang in turn sparked the greatest fall in Irish banking stock prices in more than a quarter of a century.

The share price of Anglo Irish Bank fell by 46 per cent before the markets closed.

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Throughout the day, senior officials from the Department of Finance, the Central Bank and the Irish Financial Services Regulatory Authority's office, held a succession of meetings in the department and the Central Bank and met senior figures from Irish banks.

The officials reviewed the various contingency plans that had been put in place over the past weeks and months, in light of the day's dramatic and ongoing developments.

The ability of the banks to raise the short-term funding they needed in order to continue trading was drying up.

As Minister for Finance Brian Lenihan was to later put it: "The period they could continue to trade in terms of liquidity was shortening dramatically, in all cases."

The position of Anglo Irish Bank was in particular causing concern. By the end of the afternoon the officials had, in principle, selected the contingency plan they felt should be put in place.

Rather than knocking off and going home after a hard day's work, they adjourned to the Department of the Taoiseach.

The heaviest hitters in Irish banking and political life now began to gather: Taoiseach Brian Cowen and Mr Lenihan discussed the plan with the governor of the Central Bank John Hurley, the chief executive of the Financial Regulator Pat Neary, Attorney General Paul Gallagher SC and senior officials.

Some time after 8pm, AIB chairman Dermot Gleeson SC and the bank's chief executive Eugene Sheehy, and their counterparts at Bank of Ireland Richard Burrows and Brian Goggin, arrived at Government Buildings to join the discussions.

The various parties involved began a series of meetings involving various mixes of the people there, and the occasional "plenary" session.

The other banks to be affected by the decision were contacted.

The measure required a Cabinet decision, so Government Ministers were telephoned and their consent to the measure was recorded. An official later referred to the decision being taken by the Cabinet "incorporeum".

By about 3.30am, the decision had been made. Mr Lenihan went home earlier than the others to catch an hour or two's sleep. Mr Cowen left later.

Mr Lenihan was back in his office well before dawn to begin the implementation of the decision.

He began to work the phones. He spoke with Jean-Claude Juncker, the prime minister and finance minister of Luxembourg, who is the current chairman of the euro zone finance ministers' group, and the French finance minister, Christine Lagarde, current president of Ecofin.

He later said that he emphasised during his contacts that there was a requirement for a "wider European approach to this, so a common standard of protection" for banks could be put in place. He also called the leaders of the main Opposition parties.

Mr Hurley was meanwhile making contact with Jean-Claude Trichet, president of the European Central Bank.

At 6.45am, before the markets opened, Mr Lenihan's press office sent out an e-mail that outlined in brief what the Government had decided.

It went to Irish and international media outlets and immediately became one of the biggest items on the wires.

A little over an hour later, journalists from a number of radio stations were turning up at the department and he was conducting interviews.

At 9.30am, Mr Lenihan held a press conference at which he said there had been a "number of triggers" for the dramatic announcement he was making.

He made it clear that he felt the US government made a bad call when it let Lehman Brothers bank collapse.

When it was put to him that the State, with a national debt of €45 billion, was in effect providing a guarantee for bank debts totalling €400 billion, he replied: "We have to have faith in ourselves as a nation and a people that we are capable of having a viable banking system."

He looked tired, but came across as bullish. When the press conference ended he had time to linger with reporters in the hallway.

An EU-wide approach would be preferable, he made clear, as there would otherwise be a "dangerous tendency" towards rival protection schemes. Economic nationalism he called it, but he felt Ireland had to act.

He had mislaid his phone and his officials were looking for it. He went off down the corridor to a Cabinet meeting due to start at 10am - a little bit late.