A special adviser to former minister for finance Brian Lenihan denied he was overruled by Brian Cowen on the night the blanket bank guarantee.

Cathy Herbert, who worked with the late Mr Lenihan for five years, said she was not directly involved in the decision to guarantee the banks on September 29th 2008.

She said she was in Government Buildings but did not speak to Mr Lenihan until the very end of the night.

Ms Herbert said he was concerned about the decision and “worried this shot would not work”.

She said: “He was worried what was facing them the next morning.”

Mr Lenihan did not discuss any annoyance with Mr Cowen about the decision that was taken, Ms Herbert said.

She said: “ It did not emerged as a problem. If he felt overruled I would have known.”

Ms Herbert said much had been said about the minister’s support of the nationalisation and there was no doubt that he had argued in favour of this option.

She said the idea that had been overruled “sounds strange to me” because he knew how Government decisions were made.

The former adviser said: “You argue the case, you make the case and when the decision is made it is your job to go out and defend it and execute it.

“Once the Government decision had been made, Brian Lenihan understood that his duty as a member of Cabinet was to stand by that decision. In the event, Anglo was nationalised within 3 and a half months.”

Ms Herbert said Mr Lenihan was “suspicious” the banks had misled him on the problems in the institutions.

She said he found it very difficult to understand whether they were not telling him the truth or whether it was ineptitude.

‘Taken by surprise’

The special advisor said they were "taken by surprise" by the interview given by Central Bank Governor Patrick Honohan on Morning Ireland.

Mr Honohan had confirmed Ireland was seeking assistance from the European Union and the International Monetary Fund (IMF).

Ms Herbert said: “He was irritated by it... It made for a difficult day.”

She said there were aspects of Ireland’s bailout programme in November 2009 Mr Lenihan was not happy with.

She said he was “unhappy about the interest rate” and the lack of clarity on what it would mean for the Irish banks.

The former special advisor said she was never told about a phone call between the minister and European Central Bank president Jean Claude Trichet.

Sinn Féin’s Pearse Doherty asked if Mr Lenihan had informed her of one and Ms Herbert insisted she had no knowledge of it.

Under questioning from Fianna Fáil TD Michael McGrath, Ms Herbert said the European Commission told Mr Lenihan it was “unrealistic” for Ireland to retain its corporation tax when in a programme.

She said this was a red line issue for the minister and the Government.

The inquiry is due to hear from financier Derek Quinlan at Thursday's second session, beginning at 11.30am. According to the committee website, Mr Quinlan is being called to provide an overview of the relationship between his company (Quinlan Private) and its principal financial institutions.

Two other sessions in the afternoon will focus on the role of the National Treasury Management Agency (NTMA) during the crisis. The committee will hear from its former director of finance, Brendan McDonagh, at 2.30pm; its former chief executive Michael Somers will give evidence from 4.30pm.