Ex-Irish Central Bank head says regulation couldn't have stopped crisis

DUBLIN, May 21 (Reuters) - The former head of Ireland (Other OTC: IRLD - news) 's central bank on Thursday said he regretted his failure to foresee the country's 2008 financial meltdown, but in his first public appearance since the crisis said financial regulation alone could not have prevented it.

John Hurley who retired as central bank governor a year after he backed a controversial 2008 blanket guarantee on all bank liabilities, told a parliamentary inquiry that the central bank had underestimated the dangers Ireland was facing at the time.

"It is clear that in hindsight the warnings in our financial stability reports should have been much stronger and I very much regret that the bank underestimated the risk," Hurley said.

He said that while he was responsible for monitoring macroeconomic stability, it was the responsibility of the independent financial regulator to directly monitor the banks.

But "I do not believe that regulation could on its own have stopped this crisis," he said. "The forces that were at work, both domestically and internationally, were very formidable."

Hurley defended his role in backing a banking guarantee in which Ireland tied its fate to its tottering financial sector in the early hours of Sept. 30, 2008.

He said the country only had "one opportunity to assuage the markets."

The European Central Bank, he said, had made clear to Ireland that the government was expected to stand behind the banks to avoid a "Lehman-type situation."

The guarantee helped force the government to pour 64 billion euros into its banking sector and take a bailout from the European Union and International Monetary Fund.

He also defended the decision not to allow Anglo Irish Bank to fail rather than including it in the guarantee. The failure of Anglo and fellow failed lender Irish Nationwide cost the Irish state around 35 billion euros.

"It was considered that the signal effect of nationalising Anglo would be more negative than positive and could raise market concerns about the systemic weakness," he said. (Reporting by Conor Humphries; Editing by Toby Chopra)