Nationalising Anglo Irish Bank instead of including it in the blanket bank guarantee would not have made any difference, a senior Department of Finance official has told the Oireachtas banking inquiry.

Second secretary general at the department Ann Nolan said nationalising Anglo did not stop the outflow of funds from the bank. She said: “I do not believe it would have made any difference” if Anglo had been nationalised before or at the time of the bank guarantee in September 2008, rather than in January 2009.

In response to Socialist TD Joe Higgins, Ms Nolan said she could not comment on the night of the guarantee as she was not present, but that nationalising Anglo did not stop the outflow of money.

Asked whether she thought Irish banks had lied about their capital requirements, she said she believed the banks themselves weren’t fully aware of what they needed. She said if in 2008 someone from AIB said they needed €20 billion, “everyone would simply have said ‘you’re mad’”.

Fine Gael TD Kieran O’Donnell asked why there wasn’t more detailed due diligence done before the decision was made to recapitalise Anglo. Ms Nolan said the department didn’t have the luxury of taking months to look at every loan.

She said the first round of recapitalisation was done on the basis of relatively little due diligence and after that the banks’ situation continued to deteriorate.

Ms Nolan said an additional €1.5 billion was put into Anlgo the week before it was nationalised in January 2009 because the Government was still waiting on a due diligence report from Arthur Cox by the time a European Commission deadline was due to pass.

Long term cost

Ms Nolan said the long term cost of the guarantee would be associated with Anglo. The country will probably get its money back on the “living banks” but “we won’t get anything back from Anglo,” she said.

On correspondence between herself and Central Bank governor Patrick Honohan, recently published in a newspaper, about payouts for subordinated bondholders in Anglo, Ms Nolan said she would try to ensure the payments are not made. However, she said the “moral argument” may not work.

Ms Nolan said the financial crisis lead to a number of supervisory and other changes at domestic and European level. Some changes have been implemented while the implementation of others is ongoing, she said.

Later in the hearing, former second secretary general Donal Mc Nally said he believed lessons would be learned from the experience of the financial crisis.

He told the committee that he had been advised the banking system was in line for a “soft landing”.

The general opinion was that there would be a soft landing in which case there would be less tax revenue but the losses could be made up elsewhere, he said.

He said he noticed the credit expansion of the banks but felt the matter fell under the remit of the Central Bank. He said his department was unaware of the extent to which the economy relied on the construction industry.

Electoral gain

Asked by Senator Michael D’Arcy whether it he believed Special Savings Incentive Accounts (SSIAs) were an example of the government putting its hand into the till for electoral gain, Mr McNally said he thought it was more the case that the minister was trying to encourage people to save and the SSIA scheme was the best way that he saw of doing so.

He did say, however, that he didn’t agree with the SSIA scheme.

He also said in response to Mr D’Arcy that he was not aware of the precise details of the plan to decentralise government departments until they were announced in the budget.

In response to questions from Senator Sean Barrett, Mr McNally said he noticed a cultural change in banks over the years. He said they became more focused on seeking out profits amid increasing salary bonuses for officials.

On how governance should work now and in the future, he said experience of the crash should reinforce the idea that it is important for governments to run surpluses; that there should be a social compact or consensus where money doesn’t have to be spent just because it is available and that a rule limiting expenditure should be in place.

In the final session between 2.30pm and 6pm, the inquiry will hear from former minister for finance Charlie McCreevy.