Alternatives to bank guarantee ‘should have been considered’

Less onerous solutions than the bank guarantee should have been considered by the government on the night of September 29th, 2008, a former Bank of Ireland director has said.

David Dilger, who was a director from 2003 to 2009, provided a written statement to the Oireachtas banking inquiry, which was published yesterday.

In his correspondence, he said the bank was “entirely solvent” in 2008 and at all times before that date.

“I am clear that in normal circumstances, Bank of Ireland did not need a guarantee,” he said.

“However, the likely contagion impact of either one or two Irish banks potentially failing or being nationalised could foreseeably have had catastrophic consequences for the entire banking system in the absence of a systemic solution such as an appropriate guarantee or an immediate recapitalisation of all remaining banks.”

Guarantees

Asked whether the decision to introduce a blanket bank guarantee for all six institutions was the right choice, Mr Dilger said he was not in a position to second guess the move.

However, he said: “With the benefit of hindsight, it seems clear that, given time, less onerous solutions could have been considered.

“I do not know whether it was possible on that evening to create sufficient time to explore those options. I am unaware of any discussions on this issue with other financial institutions and my belief is that there were no such discussions.”

Mr Dilger was one of six former Bank of Ireland officials who were asked to provide written statements to the banking inquiry.

Former executive director and chief financial officer John O'Donovan said the nationalisation of Anglo Irish Bank, favoured by former minister for finance Brian Lenihan, was not a realistic option on the night.

“Nationalisation on the night of the 29th September 2008, in my view, was not feasible, due to market considerations and therefore, in my view the options were to guarantee its liabilities or to fund it until the following weekend and then take a more permanent decision,” he said.

Collateral damage

“In government choosing the guarantee option on the 29th of September 2008, Bank of Ireland, even though it didn’t itself have imminent need of the guarantee, avoided any collateral damage associated with the solution of the ‘Anglo problem’ and the guarantee provided liquidity and funding stability for all participants in the guarantee scheme.”

Mr O’Donovan, who was paid a basic wage of €550,000, defended his salary in his letter to the inquiry. He said it was decided by the group chief executive and approved by the remuneration committee of the court of directors, which was comprised entirely of non-executive directors.

Tom Hayes, Bank of Ireland's chief executive of corporate banking in January 2006, used his statement to defend the bank's lending in the area of property.

He said it represented a relatively small proportion of the overall corporate banking loan book.