Former U.S. Ambassador Tom C Foley

The United States Ambassador to Ireland warned Washington in 2008 that he believed Ireland was being "optimistic" with regard to its banking sector, fearing that it was teetering on the verge of collapse.

In a message to the State Department in Washington written in October 2008 by then-ambassador Thomas C Foley and published by WikiLeaks this week, Foley said Irish government officials believed the level of compromised assets on the books of its banks was relatively insignificant.

The Irish government had failed to grasp the enormity of the developing crisis and had decided to introduce a wide-ranging bank guarantee scheme the previous month to remedy the drying up of credit to Irish banks, the confidential note claims.

At the time, the confidential message reveals, even the chief civil servant at the Department of Finance Kevin Cardiff had a favorable impression of the loan books of two major banks after his department hired auditors to examine their loan portfolios.

One Irish Central Bank figure, Gordon Barham, is quoted in the just released documents as saying the Irish media had exaggerated the level of problem assets and said any impaired loans could be easily managed.

Foley however wrote that the Irish government had its work cut out in trying to stop the bleeding of the financial sector, and said economic policymakers in Ireland would face their most significant challenge in decades.