The Irish Financial Services Regulatory Authority has contacted the investment funds that it regulates seeking details of their investments and their performance in light of the problems in global financial markets.

In an information note issued last night, the regulator also said it was stepping up its "dialogue" with other regulators.

"We are also monitoring investments and performance in the Irish authorised funds sector given the diversity of investments certain funds are permitted to invest," the regulator said.

It said a central focus of its interaction with other regulators and "regulated entities" had been on "market liquidity and related issues".

The regulator repeated its comments that commercial paper investments of the type that led to difficulties at an International Financial Services Centre (IFSC) subsidiary of German bank SaschenLB at the weekend do not need to be licensed in the Republic.

A fund managed by the IFSC subsidiary of SaschenLB needed a €17.3 billion bailout from a group of German banks last weekend.

SaschenLB Europe's Ormond Quay investment fund, or conduit, made long-term investments funded by short-term borrowings or commercial paper.

It was unable to pay its debts after having problems raising new short-term loans. When its ultimate parent, SaschenLB, could not meet its credit needs, a group of German banks stepped in with the rescue of Ormond and two related funds.

On Friday, an unrelated Irish financial firm, Structured Credit Company, went into receivership with liabilities of $438 million (€325 million) after facing similar problems.

The chief executive of another state-backed German bank, WestLB, said yesterday that German banks in general were struggling to borrow from their counterparts abroad because of doubts about the sector's creditworthiness. A number of German banks, including WestLB, have significant operations in Dublin's IFSC. Germany's state backed landesbanks such as Sacshen are amongst the biggest operators of conduits in the European banking market.

Alexander Stuhlmann said German lenders were in a "not uncritical situation" as a result of the continuing credit crunch.

"We sense in the markets that the readiness of foreign banks to extend credit lines to German banks has become difficult."

WestLB, which has more than €1.2 billion in exposure to the US subprime market, and SaschenLB are among a number of German banks with IFSC operations. SaschenLB is reported to have a €3 billion exposure to US subprime investments.

Mr Stuhlmann's comments underscore the credit worries that continue as rising delinquencies in the US subprime market spill into other markets through pools of asset-backed debt products sitting on the books of banks and hedge funds.

He was speaking after the €3.5 billion rescue of German lender IKB after it ran into problems arising from the US subprime crisis.

He said the IKB rescue had created the impression abroad that the whole sector was facing problems.

German finance minister Peer Steinbrueck said yesterday he thought the country's bankers had the situation under control.

Investors worry, however, that big damage may not be limited to the non-listed state-sector banks.

The €17.3 billion rescue of Ormond Quay has meanwhile led to calls from the Labour Party for the Minister for Finance to explain how such structures avoid regulation in the Republic.

The party's finance spokeswoman, Joan Burton, said the matter pointed to an "elephant in the room" in regulation terms.

"Minister Cowen now needs to explain why these conduit funds were allowed to remain unregulated, and what steps, if any, he intends to take to ensure they are subject to proper scrutiny."

She said many Irish people would question the value to the Irish economy of a fund that made profits of almost €8 million last year but paid just €250 in tax.

"Ultimate responsibility for this situation must rest with the Minister for Finance."

Ratings agency Standard & Poor's has cut its assessment on SachsenLB's debt to BBB+, the eighth highest of 10 possible ratings. It was previously A-. The agency said the bank "needs to restore investor confidence".

Canadian agency DBRS yesterday confirmed its existing ratings on the bank, while other agencies have placed their ratings on review.

(Additional reporting, Reuters)