Merrill Lynch told the government in 2008 the cost of bailing out the banks would only be a quarter of the €64 billion it eventually cost the taxpayer.
The information has been disclosed by Department of Finance documents released to Sinn Féin finance spokesman Pearse Doherty in recent days.
In a 45-page presentation to the Department of Finance on November 18th, 2008, Merrill Lynch estimated it would cost some €16.4 billion to fund a State rescue of the banks. The American-based bank was commissioned by the government to advise it as the banking crisis intensified during 2008, and to give advice on the €7 billion recapitalisation of banks in 2009.
However, sources said Merrill Lynch’s figures were affected by domestic banks not disclosing fully their exposure.
Yesterday, Mr Doherty said that, on foot of documents released to him after a Freedom of Information request, questions needed to be answered by both the previous Fianna Fáil-led government and the Department of Finance.
"Fianna Fáil and the Green Party, who were in power at the time, must tell the people why they kept quiet about the State's exposure resulting from the banking crisis," he said.
Documents withheld
He said the Government was withholding many documents, notwithstanding an imminent inquiry into the banking crisis. "I sought a number of pieces of information about the banking crisis under Freedom of Information. Of the 24 documents I requested, 20 were denied. Six years after the banking collapse, the public deserves to know who knew what . . ."
The Donegal TD said what was significant was the huge underestimation of the exposure.
“In November of 2008, Merrill Lynch was telling the Irish government that the capital hole in the banks would cost €16.4 billion. Two weeks earlier, it had estimated €8 billion. We know now that the capital hole was actually closer to €80 billion, over €64 billion of which was met by the taxpayers. How did Merrill Lynch get these figures so wrong?”
The Government declined to comment but a source pointed out nobody was in a position to estimate the impact of the banking crisis coupled with the property crash.
