The Governor of the Republic of Ireland’s Central Bank confirmed that he warned the Government on Monday that “decisive action” was needed to safeguard the country’s banking system.

John Hurley said that the controversial new bank guarantee plan was introduced to “protect the stability of the domestic financial system”.

“It was necessary for our Government to take action to protect our country. We didn’t have a European-wide initiative, we had to take action in advance of that,” he said at the launch of the Central Bank’s quarterly bulletin.

“For over a year now, the Central Bank has been monitoring the disruption in international financial markets. This was triggered by difficulties in the US sub-prime mortgage market and resulted in a protracted drying up of liquidity in a range of markets.”

Mr Hurley said efforts to inject liquidity did not have the desired effect and that the failure to pass the US bailout legislation saw events come to a head last Monday.

“At that time, I had to inform the minister that the risks to financial stability were becoming unacceptably high with knock-on effects for the wider economy. A major consideration was that the highly concentrated nature of the Irish banking system created a high risk of contagion.”

Dublin commentators said that “highly concentrated nature” was a euphemism for the money on loan to property developers.

“I know these matters are being discussed but other countries have also had to take such action. Six Governments are now involved in supporting financial institutions across the euro area and other Governments more widely than that.”

Mr Hurley said the guarantee would allow Irish banks to “secure access to funds both domestically and internationally” and that the decision was taken following consultation with the Financial Regulator.

Mr Hurley said that, unlike other international banks, Irish-owned banks have “not had to write off significant losses on loans and investments so that bad debts and loan losses were not the key issues for our financial system last Monday evening”.

The issue for the Irish banks was the unprecedented shortage of liquidity in financial markets. The primary consideration was to ensure financial stability at minimum cost to the taxpayer.

Work on a system of charges that “minimise moral hazard implications” was complex but should be completed by the weekend, he said. If the correct decisions were taken now, the medium-term outlook for the economy was good.

Meanwhile Irish Nationwide has described as “inappropriate and regrettable” an e-mail sent by the son of its chief executive seeking business in Britain on the strength of the Government's deposit guarantee.

A Department of Finance spokesman has confirmed that the e-mail, which surfaced yesterday, has been referred to the Financial Regulator.

Michael Fingleton Jr sent the e-mail to a friend from the Irish Nationwide's London office, stating that Irish Nationwide represented the “safest place to deposit money in Europe with an AAA guarantee from a country with the lowest national debt to GDP ration of any AAA country”.

The e-mail said that deposits attracting fixed-term interest rates of 6.75% and 7.1% were guaranteed, regardless of size and represented the best value in the UK market.

The e-mail continued: "Please be so kind as to pass on to friends, colleagues and clients as you see fit."

The words "guarantee" and "guaranteed" are used six times in the e-mail. The terms are particularly sensitive because of the negative connotation implied for the British banking sector, which is not subject to the same level of Government guarantee as the Irish-owned banks.

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