The Central Bank has underlined its rejection of key criticisms levelled against it by the Dail subcommittee which investigated DIRT tax evasion.

There were "disappointing aspects" to the Public Accounts Committee's report and the board disagreed with a number of its findings, the governor of the Central Bank has told the Minister for Finance.

Mr Maurice O'Connell, in a letter to Mr McCreevy, said the board was still of the opinion that the concern about capital flight in the 1980s was "well founded" and believed the evidence presented to the tribunal bore this out. The fear of a flight of capital was one of the reasons used to argue against strong measures to counter the use of bogus non-resident accounts in the 1980s.

Mr O'Connell also writes that the board "rejects the conclusion that the Central Bank had an inappropriate and outmoded approach to supervision. This is simply untrue.

"The bank has an excellent record in this constantly evolving field and this has been reflected in the requests to provide technical assistance abroad."

The letter accompanies a response from the board to the DIRT report requested by Mr McCreevy on December 22nd, 1999, and presented on January 17th, 2000. A copy of the letter and the response were released following a Freedom of Information request.

Mr O'Connell's letter also states that there are "some considerable errors of fact in the material on exchange controls" in the report. Curbing DIRT evasion through the use of the exchange control regulations was not a practical approach, he says.

On seizing dormant accounts, Mr O'Connell says the issue "has been on the agenda for many years. There are some practical difficulties and the question also arises whether the Public Accounts recommendation might be applied to all unclaimed funds in financial institutions".

Mr O'Connell states that the emphasis on consumer issues in the debate on the proposed single regulator for the financial institutions must not allow the downgrading of the significance of prudential regulation.

"If we have serious ambitions to build and sustain a strong international profile in the financial services sector, we need to demonstrate that we have the competence and expertise to provide the kind of regulatory system that this requires. If the single regulator cannot provide such assurance, then the Irish financial sector will be disadvantaged."

In relation to ethical standards, Mr O'Connell said the Central Bank has contacted the institutions, reminding them of their responsibilities, and asking them to submit their codes of ethics for consideration.

In its formal response, the board of the Central Bank says it welcomes the recommendations in relation to supervisory matters. "The unacceptable practices which are highlighted in the report have damaged the reputation of the Irish banking system. It is essential that there is an assurance that the highest standards now prevail."

The response points out that "the norm is that banking supervisory authorities do not have any role in relation to tax collection or investigation of tax evasion. They are also bound by statutory confidentiality provisions. These are essential for the free exchange of information internationally between banking regulators".

The board rejects what it calls an "unsubstantiated allegation that the relationship between the bank and the financial institutions was inappropriate". The bank always operated in a totally independent manner and applied in an even-handed way all statutory requirements, the bank says.