Banks have been told to conduct urgent independent reviews of their risk control systems after the Allfirst debacle at AIB.

"Seriously concerned" about the $691 million (€784 million) in fraud-related losses at Allfirst, the Central Bank told the credit institutions that the affair highlighted the need for strong systems of internal control and risk management.

In a letter to every lending institution in the State, its governor, Mr John Hurley, asked for "independent verification" of each organisation's entire risk management and control system, ruling out internal assessments.

No deadline was set by the Central Bank, but it is thought to expect reports to be produced promptly.

Mr Hurley stated he wanted "particular emphasis" in the reviews on the management of the relationship between parent institutions and foreign subsidiaries "as a matter of urgency".

This requirement was a clear reference to the breakdown in internal controls cited in the report by the US banker, Mr Eugene Ludwig, last week into AIB's losses.

His report outlined a litany of bullying, laziness and weak management that led to the fraud going undectected until it was in its sixth year.

The passivity of managers was akin to fraud, AIB claimed.

Mr Hurley said the Central Bank wanted to remind the credit institutions of their obligation to ensure that risks were controlled and managed to the highest standards. He added: "Credit insitutions are required by paragraph 3 of the bank's licensing and supervision requirements and standards to comply with best international practices, including the risk management guideliness for derivatives published by the Basle Committee in 1994 and the Bank of England in its report into the collapse of Barings in the UK, published in 1995."

The Bank has already indicated that "follow-up action" will be taken if it deems the reports to be unsatisfactory.

It has said it is working closely with the US Federal Reserve to finalise investigation of the Allfirst affair.

Mr Ludwig said last week that his report was correct as to the fundamentals of the scandal, but he called for further investigation and added that "lurid details" were likely to emerge.

He blamed currency trader, Mr John Rusnak, for the fraud.

The report resulted in the dismissal of six senior executives at Allfirst.

The subsidiary's chief exeutive, Ms Susan Keating, retained her job. AIB's chief executive, Mr Michael Buckley, and its chairman Mr Lochlainn Quinn, also held on to their positions.

The Central Bank has already asked AIB to carry out urgently the additional work identified in Mr Ludwig's report.

It wanted to ensure that "all of the issues indentified" would be fully addressed.

The Bank has indicated that there will be continuing dialogue with AIB to ensure the implementation of Mr Ludwig's report.