The chief executive of the financial regulator, Pat Neary, announced his decision last night to retire early over the handling of the regulator's investigation into the €87 million in secret directors' loans at Anglo Irish Bank.
An internal investigation by a committee of the Irish Financial Services Regulatory Authority found that there had been a breakdown in internal communication and process within the regulator's office, following the discovery of the hidden loans to Anglo's former chairman Seán FitzPatrick in January 2008.
Mr FitzPatrick had, over an eight-year period, transferred the loans off Anglo's books to Irish Nationwide Building Society before the bank's year-end on September 30th and moved them back afterwards to avoid them being publicly disclosed.
Mr Neary said in a statement that he was unaware of the loans until they were raised with him by Minister for Finance Brian Lenihan last month. "So far as I am concerned, I was not advised of any such matters in early 2008 and there has been no oral, written or e-mail escalation of these issues to me or to the authority over the period until the matter was raised with me by the Minister on 10th December, 2008," he said.
He said he deferred a decision on his retirement until the committee had reported on its inquiry into "the internal communication" of matters relating to the loans.
"In taking my decision to retire now, I am conscious of the need to uphold the good standing of the regulator and public confidence in it, especially at a time of great financial turbulence which is challenging all regulators worldwide."
Mr Neary joined the Central Bank in 1971 and moved to the financial regulator when it was established in 2003. He became chief executive of the regulatory authority in February 2006 and has been widely criticised for his handling of the banking crisis.
His decision to retire early from the five-year post will come into effect on January 31st. In a statement, Mr Lenihan said that pending the appointment of a new chief executive, the chairman of the regulatory authority, Jim Farrell, will take on "an expanded executive role and that an acting chief executive will be appointed".
Fine Gael said Mr Neary's retirement was an inevitable consequence of the failures of the regulatory regime that had been exposed in recent weeks. The party's deputy leader, Richard Bruton, said it remained to be investigated why practices identified in Anglo were not reported up the line and acted upon within Mr Neary's office.
The committee concluded that the issue was not pursued with Irish Nationwide at the time but that it was "now being pursued" under a separate investigation into directors' loans at the guaranteed institutions.
It found that while concerns persisted in the regulator's banking supervision department, "the matter was not pursued partly because a letter from Anglo went missing and partly because of the pressure on officials from the unfolding liquidity problems in financial markets and in individual institutions".
The committee found that "the issue did not surface again internally, even in autumn 2008, when major stability and strategic issues were being addressed by authorities including the Government".
Among the committee's recommendations were that the staffing requirements at the regulator's office be reviewed internally and by outside consultants, and that loans to directors be examined in greater detail, including borrowings to businesses where a bank director has a significant interest.
The committee said a progress report on its recommendations should be made to the authority by the end of next month.