The Republic of Ireland’s e440 billion (£332bn) bank guarantee was the most destructive own-goal in history, a banking expert from the USA has told a parliamentary inquiry.
Professor William Black, of the University of Missouri-Kansas City, described the September 2008 decision was “insane” and the worst possible measure that could have been taken by the then Fianna Fail/Green government.
But the former director of the US Institute for Fraud Prevention said inexperienced politicians were bounced into the decision by banks that lied to them, and that the situation was exacerbated by the “utterly incapable” regulators.
But even with hopelessly false statements, the coalition government should “never, ever” have bailed out subordinated debt - more risky loans which rank low in repayment claims - as part of the deal, he said.
The State guarantee had the effect of escalating a banking crisis into a full blown fiscal crisis that sank an entire nation, he told the Oireachtas (parliament) Banking Inquiry, which is investigating the lead-up to Ireland’s crash.
Mr Black also warned that Ireland remained vulnerable to shortcomings which led to the crisis.
The academic and white collar crime expert said banks should not be allowed to choose their own auditors, and suggested a Government-appointed panel that would scrutinise the books of major lenders.
Mr Black said his own experience in the United States showed that penalties for wrongdoing within the banking sector should include jail sentences for criminality.
The banking inquiry is expected to publish its findings later this year.