A senior European official warned that Ireland could be a Lehman Brothers moment for Europe, the banking inquiry was told on Thursday.

It was a reference to the massive bankruptcy filing of the US-based global financial services company in 2008, not long before the issuing of the bank guarantee in Ireland.

Governor of the Central Bank Patrick Honohan told the committee when he joined the bank in 2009 there were no concerns about Ireland.

Mr Honohan said this attitude changed dramatically in August 2010 and Ireland was “the centre of attention”.

"I remember one senior colleague saying, 'I'm afraid that Greece is Europe's Bear Stearns but Ireland will be Europe's Lehman's'. That was in September 2010.

“So, the view of Ireland had changed dramatically and it had changed dramatically because people had woken up to the scale of the banking losses being incurred by the State, and paid for, and the prospective budgetary situation.”

Mr Honohan described how he first raised the prospect of a bailout with then minister for finance Brian Lenihan in April 2010.

Mr Lenihan told him Brussels was saying Portugal was next in line for the programme.

One month later, International Monetary Fund chief of mission to Ireland Ashoka Mody contacted Mr Honohan offering a precautionary line of credit.

The governor told the committee that “Merrion Street” rejected the proposal - but declined to say who made that call.

Mr Honohan told Mr Mody: “I said ‘Try it, it might be a good idea. They [the government] might not like it, but try it.’ It did not go anywhere.”

Mr Honohan said he wrote to the European Central Bank raising concerns about the emerging problems in July 2010.

‘Dead silence’

He said he expected an early meeting and to be quizzed about what was going on. Instead, he said, there was “dead silence”.

“I thought this is good news, they must have figured it out for themselves. I wrote them another letter in August with the full information.

“I did get a response then. Concern and anxiety was starting to build there.”

Mr Honohan insisted the country would have needed a bailout, regardless of the bank guarantee.

He said the economic and banking crash had cost the State €100 billion - and that figure was still growing.

Mr Honohan said not guaranteeing the six institutions in September 2008 would have saved €10 billion at the most.

He said: “All in all, a possible net economic saving in the area of €2-€10 billion could be imagined, but surely no more than that.

“If so, by September 2008, well over 90 per cent of the net economic cost to Ireland of the boom and bust had become unavoidable.”

Mr Honohan said he wanted to put a figure on it because the narrative had been focused on whether the guarantee was the right decision. He said this was the least important question, but the most over-analysed.

He denied the ECB would ever have pulled funding from Ireland. It never would have availed of that decision, he said.