The Taoiseach and the Minister for Finance were sharply criticised today by Fine Gael's Michael Noonan who said they ignored advice against providing a blanket guarantee to Anglo-Irish and other banks in the crisis that arose at the end of September 2008.
He said Public Accounts Committee documents showed they were warned five days in advance by Department of Finance Secretary General David Doyle that the banking system potentially faced not just a liquidity but also a solvency crisis.
"The very next day Merrill Lynch's top advisers, hired by the Government at great expense to advise on the crisis, recommended against a blanket guarantee at a meeting attended by the Finance Minister," Mr Noonan said.
However, speaking to reporters yesterday, Taoiseach Brian Cowen said: "There were a number of options actually set out by Merrill Lynch."
He added that, "The Central Bank Governor's report confirms that the guarantee option was the way forward."
Asked about Merrill Lynch's view that a blanket guarantee would be a mistake, Minister for Finance Brian Lenihan said the advisers outlined a number of options, including that Anglo Irish Bank's subordinated debt – funding provided by investors in return for a risk premium – be included in the guarantee to show it was a systemic institution.
Mr Lenihan tonight said advice received from Merrill Lynch on September 26th 2008 suggested a guarantee for the six Irish banks would be the "most decisive" and "most impactful from market perspective".
He said the only option which Merrill Lynch discounted, after full consideration, was the option of allowing an Irish Bank to fail. "This is the option that Fine Gael has advanced since 2009," Mr Lenihan said.
The Government paid €7.3 million in fees to Merrill Lynch, including €5 million in 2009, for its advice on the banking crisis between September 2008 and June 2009.
A Labour member of the Public Accounts Committee, Deputy Roisin Shortall said: "There is no evidence in the documentation to suggest that alternatives to the blanket guarantee were properly considered in spite of the very expensive advice being sought from advisers, such as Merrill Lynch."
Sinn Fein Finance Spokesman Arthur Morgan said: "The information supplied by the banking system in the run-up to the guarantee was falsified and the banks dramatically over-estimated the value of their assets. The mis-information and inaccuracy of forecasts surrounding these assets tainted the considerations of officials in the run-up to the guarantee. The result of these false truths is that the taxpayer has been exposed to a litany of debt of generations to come."
