Banks asked for meeting with Cowen and Lenihan

THE BACKGROUND:IF THE Government had chosen the alternative option of nationalising a vulnerable bank earlier this week, it might not have prevented a run on all banks in the State, Minister for Finance Brian Lenihan has said.

In the course of extended contributions to the Dáil and Seanad debates on the emergency legislation late on Wednesday and early yesterday, Mr Lenihan gave a detailed account of the background to the crisis and the Government’s rationale in framing its response.

He outlined the key measures that will underpin the €400 billion guarantee scheme to six Irish financial institutions and possibly Ulster Bank.

Mr Lenihan told the Seanad that it became clear to the Government on Monday evening “that the huge battering the Irish bank shares had taken on the Stock Exchange reflected a general collapse in market confidence in the whole Irish banking sector. This was a very serious situation.”

The Minister disclosed that it was the banking industry and not the Government which made the first contacts in relation to the growing crisis.

“I was asked for a meeting by the chief executives of AIB and Bank of Ireland, who indicated to me that they and the chairmen of their respective institutions were both interested in meeting me and the Taoiseach.”

Mr Lenihan said the chief executives made clear to Government that liquidity was drying up in the Irish bank system and the banks were reaching dangerous levels of exposure in terms of time-limits.

“The Taoiseach chaired these meetings and acted with total propriety. He heard what the banking interests had to say and asked them to leave the room.”

The comparative lack of detail in the Bill was deliberate, Mr Lenihan said, adding that it was always a mistake to include too much detail. Nonetheless, he did give some indications of what will be included in the scheme, which is due to be presented to Cabinet on Tuesday.

Earlier, the Minister detailed some aspect of the financial arrangements and the charges that may be imposed on banks in return for the State guarantees.