The then chief executive of the National Treasury Management Agency only found out about the State's decision to issue a blanket bank guarantee on the night of September 29th, 2008, by way of a text message on the following morning.
Speaking to the Oireachtas Banking Inquiry on Thursday, Michael Somers, who retired as NTMA chief in late 2009, said he was in the United States on business with his deputy John Corrigan on the night of the guarantee decision and he found out about it via a text message from a colleague.
He was not aware of any pending crisis at the time of travelling to the US. “If we had been, we would have stayed [in Ireland],” he said.
‘Best course of action’
“If there was a risk of a run on the banks, then a guarantee on deposits was probably the best course of action,” he said of the decision.
“I understand that the senior bonds were issued on the basis that they ranked ‘pari-passu’ [on an equal footing] with deposits. The rationale for guaranteeing other bonds is not clear,” Mr Somers added.
In relation to the debate that took place on the night of the guarantee about nationalising Anglo Irish Bank, Mr Somers said it was "probably inevitable" and it was just a matter of timing.
“By then there was nothing to indicate that it had a future as a privately owned institution,”he said.
Mr Somers said the decision to establish the National Asset Management Agency to take toxic loans off the balance sheets of the Irish banks was taken "very quickly" by the Minister for Finance Brian Lenihan.
Mr Somers said he “supported” the minister when he announced the establishment of Nama.
“I also, at his request, went to see [then ECB president Jean-Claude] Trichet to tell him that we would need about €60 billion from the ECB to fund it. I was hesitant about the amount of money that was going to be paid into the banks and the rapidity with which it was to be done,” he said.
Mr Somers said the minister felt it would free up the banks to start lending again. “I felt that we should take just some loans from the banks and see if that would encourage them to lend,” he said. “I also felt that the banks should be pressed to recover the loans themselves as they knew ‘where the bodies were buried’.”
‘Bonanza for lawyers’
He saw transferring the loans to Nama as a “bonanza for lawyers and other professionals”.
“In the event, a very large number of loans were transferred to Nama at a substantial discount. Regardless of what happened, the likelihood is that the outcome would have been the same,” he said.
Mr Somers said an effect of Ireland joining the euro was that Irish banks, instead of covering their lending from a large population of small to medium deposits - not large corporate deposits - relied to a great degree on borrowings from the international interbank market.
“By their nature these funds are short-term and need to be constantly rolled over,” he said. “When this becomes difficult, and other sources of funding are not available, a crisis arises, which is what happened.”
He said that by the time the NTMA, which manages Ireland’s national debt, was brought into the deliberations on the banking crisis, there were “no easy solutions”.
“However, by virtue of the fact that the NTMA existed, and had prudently managed its operations, the State was in much better condition financially to tackle the crisis than would otherwise have been the case,” he said.
