An expert in bank regulation says Ireland's bank guarantee was the "stupidest own-goal in history".

However, Professor Bill Black of the University of Missouri-Kansas City added he understood why politicians made the decisions they did.

He told the banking inquiry that Ireland had a situation where banks and regulators were "BFFs" (best friends forever).

He said it is mathematically guaranteed that banks will break the rules if the regulators are too soft on them.

"I don't know if you use the phrase BFFs … the idea that the banker could be [your] BFF, and that we could all have a 'kumbaya' moment - we all strum folk songs together - and [if] we were just nice to the bankers, the bankers would work with us."

But he said that was a recipe for disaster, and that the entire country was let down as a result.

He posed the question: "If you're the Government and the regulators tell you it's just a temporary liquidity crisis, but if you don’t act within the next 12 hours, the whole system melts down - what are you likely to do?"

Professor Black said the banks had also supplied "hopelessly false" statements but even then: "You never ever ever bail out subordinated debt."

He said there were key warning signs before the crisis with banks “growing like crazy, terrible quality loans, extreme leverage and no meaningful loss reserves”.