Madame, – Your columnist Fintan O’Toole (Opinion, July 27th) asserts it is now “completely clear” that the Government made a “horrendous mistake” in including Anglo Irish Bank in the bank guarantee in September 2008.
Superlatives are a feature of Mr O’Toole’s arguments. Let us consider the objective analysis of the Government’s action on the night of the 29th of September.
The foremost expert on banking in this country is Prof Patrick Honohan whom I and the Government appointed Governor of the Central Bank last September.
In his recently published report on our banking crisis, Prof Honohan said that Anglo Irish Bank “was clearly systemically important in the prevailing conditions at the end of September 2008”. He endorses the Government’s assessment that “a disorderly failure of Anglo would in the absence of any other protective action have had a devastating effect on the remainder of the Irish banks”. He said the impact of allowing Anglo to fail would have been that “in all likelihood the main banks would have run out of cash within days.”
On the matter of the guarantee, Prof Honohan said “it is hard to argue with the view that an extensive guarantee needed to be put in place, since all participants (rightly) felt that they faced the likely collapse of the Irish banking system within days in the absence of decisive immediate action.”
He disagreed with the decision to guarantee subordinated debt which amounted to just 3 per cent of the total guaranteed.
I have already said that subordinated debt will not be covered under the renewed guarantee.
In the papers on the bank guarantee recently released by my Department and published by the Public Accounts Committee, the Government’s financial advisers Merrill Lynch strongly endorsed the principle that no Irish bank should be allowed to fail against the backdrop of what the Governor describes in his report as “the hysterical state of global financial markets”.
Merrill Lynch also recommended a blanket guarantee of Anglo Irish Bank, including, incidentally, subordinated debt. I agree with Mr O’Toole that governments should be sceptical. But they most assuredly should not be reckless. – Yours, etc,