Honohan announced bailout talks over ‘bank run’ fear

Central Bank of Ireland governor Patrick Honohan took to the airwaves on November 18th, 2010, to inform the public that Ireland would enter discussions on a bailout programme because there was a "sense of growing panic in the financial sector that the Irish situation was getting out of control".

In testimony to the Oireachtas Banking Inquiry on Thursday, Mr Honohan said he was speaking to "middle Ireland" in the RTÉ radio interview - people who were beginning to think about withdrawing their money from the banks.

“I was afraid there would be a run on the banks,” he said.

Mr Honohan was in Frankfurt at the time he made the call to RTÉ, but said he was not pressured by the ECB to do so.

The previous day, a eurogroup meeting of finance ministers had involved a discussion urging then minister for finance Brian Lenihan to announce that Ireland was looking to enter an EU-IMF bailout.

Mr Lenihan said he did not have the authority to do so.

‘Sense of alarm’

Mr Honohan said there was a “sense of alarm” among the governing council of the ECB in Frankfurt about this and he was asked to “convey” this message to Mr Lenihan.

“They were all at one in saying ‘You should be going into a programme’,” he said, adding that this was also his view.

Mr Honohan phoned Mr Lenihan at 9pm or 10pm on November 17th and relayed this message. Mr Lenihan replied: “I can’t do that, I need a government decision.”

“He was very cross, there was no talking to him,” Mr Honohan said.

The governor said the ECB “inadvertently” did Ireland a favour by pushing the country into a bailout.

Ireland could have “staggered” on in 2011 and 2012 if the ECB had decided to fund the Irish banks but the interest rate charged on the State’s bonds would have continued to rise, he said.

‘Higher costs’

“Now we’d be saddled with much higher debt-servicing costs,” he explained.

Mr Honohan said the late Mr Lenihan was “very much admired” by the ECB’s former president Jean-Claude Trichet and his peers on the eurogroup.

He found former taoiseach Brian Cowen to be a "businesslike and an efficient chairman in charge" of meetings he attended.

He described Mr Cowen as “courteous and in control of the situation” and someone who could handle bad news.

“He sometimes doesn’t get that image,” Mr Honohan said.

Reflecting on his six years as governor - he plans to retire by November 1st - Mr Honohan said the first round of bank stress tests in March 2010 could have been more effective, but he feels he avoided “strategic errors” during his tenure.

“I don’t think I sent things in the wrong direction,” he said.