BACKGROUND:THE FINANCIAL regulator Patrick Neary found himself in the eye of the storm in December when it emerged his office had known since January of last year about the personal loans of Anglo Irish Bank chairman Seán FitzPatrick.

The bank chairman resigned in December after it emerged that, for a period of eight years, he had been moving substantial personal loans from the bank at each year's end, so that they would not appear in the bank's annual accounts.

The loans, totalling €87 million, were transferred by Mr FitzPatrick to Irish Nationwide prior to year's end, and then back to Anglo Irish Bank once the year's end had passed. It is not known what the loans were used for.

Outrage greeted the news of what Mr FitzPatrick had been up to and Minister for Finance Brian Lenihan made it clear that he had not been informed by Mr Neary's office of the loans, up until the day of Mr FitzPatrick's resignation.

This meant that, all through the period when Mr Lenihan was contemplating and implementing the State bank guarantee scheme - which involves enormous exposure for the Irish taxpayer - an important fact that brought into question the character of the dominant force within Anglo Irish Bank was kept from him.

A spokesman for Mr Neary at the time would not comment when asked when Mr Neary himself had become aware of what Mr FitzPatrick had been doing.

Mr Neary's office learned of the loans from its inspections of the books of Irish Nationwide. The matter was taken up with Anglo Irish Bank and outside legal advice was taken by the regulator's office. The advice apparently was that nothing illegal had been done.

The regulator's office also apparently made contact with the Office of the Director of Corporate Enforcement.

It asked questions relevant to the issue without disclosing details of the case.

Meanwhile, arising from the Government's decision to guarantee the deposits of six of the main banks operating in the State, the accountancy firm PricewaterhouseCoopers was sent in to look at the loan books of these institutions. In November, a report based on this work confirmed that all the institutions reviewed were in excess of regulatory capital requirements as of September 30th last, the date on which the guarantee scheme was announced by the Government.

After Mr FitzPatrick's resignation, the bank's auditors, Ernst Young, would not comment. However, sources indicated that the firm had not been aware of what Mr FitzPatrick had been doing.

According to Mr Lenihan, he asked Mr Neary on December 10th to investigate Anglo Irish's loans to directors, after he noticed it had more of these loans than other banks. Even without Mr FitzPatrick's loans being documented, directors' loans at Anglo were larger than those of other banks.

On December 19th, Mr FitzPatrick resigned, and the regulator's office said it had known of the loans since January. Two days later, the board of the Irish Financial Services Regulatory Authority said it had not been told about the loans, and it set up an inquiry.