THERE IS a tendency by many to fixate on the events of the night the last government chose a blanket bank guarantee to save the banks, but the banking inquiry – whoever is eventually responsible for it – must look at the policy failures leading up that fateful night.

The Fianna Fáil-led government and the State authorities, regulatory and otherwise, had run out of options by close of business on Monday, September 29th, 2008, when Anglo Irish Bank had been drained of cash by a run.

What made the circumstances of that evening more strained for Brian Cowen and his officials was they had few options available to them to execute an orderly resolution of a failed institution and prioritise the claims of different creditors. It appears to have come down to a crunch choice of guaranteeing all banks or nationalising one bank on the night.

The fact that by September 2008, Cowen’s administration had more than a year’s notice – between the run on UK bank Northern Rock in August 2007 and the collapse of Lehman’s in mid-September 2008 – to create a set of tools to deal with a banking failure and did not do so points to the second-biggest policy failure of his government, after the guarantee itself.

And it is not like the failure of Northern Rock should have seemed so foreign an event to his officials at that time. The long queue of depositors on a street in Dublin outside Northern Rock’s single Irish office should have prompted the government to create a contingency plan to deal with an Irish financial institution facing a similar scenario.

Many countries have long-standing special resolution regimes that allow state agencies and regulators to intervene and take control of failed institutions, set up “bridge banks” to move depositors and good loans into other solvent banks, and override private laws for shareholders and bondholders to share losses.

State-owned Federal Deposit Insurance Corporation in the US has turned winding up failed banks and imposing losses on creditors over weekends into something of an art form.

The failure of Northern Rock left the UK government well-prepared for the considerably worse financial storm that blew into Europe after the failure of Lehman’s.

The Bank of England and HM treasury had a unity of purpose, and the legislation that was introduced in February 2008, the Banking (Special Provisions) Act, not only created powers for the UK government to nationalise Northern Rock but provided wide-ranging licence to take out other failing institutions.

This left the UK authorities in a much stronger position than Irish officials to react to the financial crisis of October 2008. The legislation was used to take out Bradford Bingley on September 29th, 2008, a rescue that fuelled concerns about the Irish banks.

The UK moved quickly to convert this temporary resolution regime into something permanent with new legislation in early 2009.

Incredibly, it wasn’t until December 2010 – after the troika had arrived – that legislation was passed giving the Irish authorities the same kind of powers to take out weak banks and force losses on bondholders.

That it wasn’t passed before then points to a lack of leadership by politicians or State officials or both. Repairs to the banks were instead done through short-term tactical fixes.

Leaving aside the old chestnut of whether the last government and its officials thought they were dealing with a solvency or a liquidity crisis in the banks, Cowen and his officials should have been far better prepared by September 2008 following Northern Rock.

Peruse the limited number of official records released by the Department of Finance and you will be left with the strong impression that the authorities were scared stiff of a run on, or a failure of, an Irish bank.

A so-called “scoping paper” drafted by the department in January 2008 assessed options but the stated approach then and thereafter was based around a policy of “constructive ambiguity” – ie do not state publicly how you could intervene in case it affects behaviour. It seems that the authorities privately hoped that the problems would simply go away.

By the following autumn, there was nothing constructive about the ambiguous official position taken to address a deepening crisis.

Cowen has since said that his government had “one shot at calming the markets” but that shot was not credible as the State couldn’t afford such an extensive guarantee.

As the fourth anniversary of the guarantee approaches, focus shouldn’t just be on the horrendous policy failure that was that vast guarantee but on why nothing more was done in preparation well before that September night.