Many banks and building societies as well as companies operating in the IFSC are hoping that the Cabinet will opt for a compromise when it examines the future of financial regulation in the coming weeks.

Significant numbers of the institutions and trade associations have been involved in behind-the-scenes lobbying over the past weeks in a bid to retain a prime role for the Central Bank.

The committee, chaired by Senior Counsel and former Progressive Democrat TD, Mr Michael McDowell, which examined the establishment of a single regulator, recommended in its report that the supervisory and regulatory functions of the Central Bank be given to a new single regulator.

That regulator would take on the Central Bank's existing functions as well as a wide variety of new tasks including regulating insurance companies and brokers and friendly societies. The committee envisaged that it would also be a more consumer friendly body legally obliged to oversee market practice of financial firms.

Guiding its approach was the stream of allegations against various financial institutions and intermediaries over recent years.

The main body of the committee's report argues that the governor of the Central Bank is not fully accountable and cannot be hired and fired by the Oireachtas because of legislation guaranteeing the independence of the Central Bank.

As a result most of the report comes down very firmly on the side of a new regulator which could have the confidence of consumers. However, the Department of Finance and the Central Bank totally disagreed with this view and their comments form a minority part of the report. Many financial institutions concur with the latter approach.

The institutions are concerned that the new regulator cannot match the Central Bank's prudential experience whereby it ensures the integrity of the entire financial system. And as one of them points out, it is the absolute safety of customer deposits which is at the core of the system, with individual consumer issues coming after this.

It is true that the Bank has done a good job as far as its responsibilities allow. The problem is the nature of regulation with which the Central Bank is charged. Up to now the Bank has mostly been concerned with prudential matters with only limited consumer responsibilities.

For many observers the best compromise would be to leave the prudential regulation with the Central Bank while placing consumer regulation under a different body, perhaps even under the Bank's titular control. However, during the committee's negotiations on its report, it is understood the Bank strenuously argued against such a compromise.

One problem is that the two regulatory functions can be in conflict with one another in some circumstances. A spokesman for Irish Life said that given the Central Bank's record it would prefer if the Bank were the lead regulator. But the challenge would be to find a structure for the market practice or consumer regulator that has sufficient credibility to reassure consumers that their interests are being protected.

First Active deputy managing director, Mr Tony Shanahan, said its only concern was that the regulation was commercial and fair. "As far as prudential regulation is concerned we would expect to be treated on the same basis as financial institutions in the EU as a whole, so as long as the regulator is of an international standard it does not matter what form the regulation takes."

Bank of Ireland and AIB would not comment. Sources say the banks are afraid that in revealing their preference to be regulated by the Bank they will be leaving themselves open to criticism. After all, a new regulator will have much greater consumer powers which the banks may not particularly want.

But the two bodies representing the banks and building societies, the Irish Bankers' Federation (IBF) and the Irish Mortgage and Savings Association (IMSA), supported the Central Bank in their submission to Mr McDowell's committee.

Those in favour of the Bank retaining its responsibilities point to the World Competitiveness Report which has placed Ireland third in the world behind the US and Switzerland for the quality of its financial regulation.

Some in the IFSC are also in favour of the Central Bank retaining prudential regulation. Mr Aidan Brady of Citibank stresses that the commercial and corporate ends of the business should not be confused. "Consumer business is not easy to regulate and mixing the two can dilute the perception of the regulator. Both regulators would always be different as they have different constituencies.

"If the two were separate under a single regulatory authority it may work and you cannot assume that the next regulator will be as good as this one."

He added that the Bank effectively "sold Ireland for us". And he wants to retain that positive approach.

Mr Turloch Denehan, of the Financial Services Industry Association, says he is worried that the issue has become a political football. "The industry has a vested interest that regulation is competitive, credible and respected. If there is confidence in the industry we do more business."

Ultimately, it seems likely that the Government will accept the report's recommendation. In the meantime, those lobbying on behalf of the Bank will be hoping that they can secure some form of compromise.