Allied Irish Banks (AIB) has avoided a public airing of potentially damaging allegations about its handling of the foreign exchange debacle after it settled a case taken against it by a former senior management executive, writes Arthur Beesley, Senior Business Correspondent

Mr Séamus Sheerin (41) is to resign from the bank, following an out-of-court settlement yesterday. The bank had previously vowed to vigorously defend an action he began in the High Court last month, seeking to restrain AIB from dismissing him.

In the action, Mr Sheerin alleged that responsibility for the overcharging affair went right to the top of the organisation. Those drawn into Mr Sheerin's case included the outgoing chief executive Michael Buckley, the bank's UK managing director Aidan McKeon and the Republic's managing director Mr Donal Forde, who was recently elected president of the Institute of Bankers. Each of them rejected the allegations against them.

Mr Sheerin said yesterday: "The matter has been resolved and it is very satisfactory."

In a statement, the bank said Mr Sheerin had made serious allegations against senior AIB executives. "These allegations were rejected by the AIB board following an independent investigation and rebutted in the proceedings."

A spokesman for Ifsra, the authority that regulates the financial services industry, said last night that the organisation "was aware of what happened in the court today, but apart from that we are saying nothing."

Mr Sheerin is to resign from the bank instead of being dismissed. According to AIB, he has been given severance terms which "do not go beyond those available had he been dismissed from the bank." Neither side would be drawn on the terms of the settlement. An AIB spokesman said both sides would pay their own legal costs.

Mr Sheerin was formerly head of the bank's strategic development unit. This was the unit that investigated the overcharging of customers by applying an unnotified rate on foreign exchange transactions over several years. AIB has already refunded more than €25 million to customers.

The court heard earlier that Mr Sheerin earned more than €10,000 per month after tax. He also said he was invited to apply for the post of chief executive.

Mr Sheerin was the first employee publicly sanctioned by the bank. Disciplinary proceedings against others are pending.