ANALYSIS:THE BANKING sector is the recidivist criminal of Irish public life, yet there were a lot of people shocked yesterday by the news of Seán FitzPatrick and his efforts over an eight-year period to hide substantial loans he had from his own bank.

"Directors' loans are a very fundamental thing with banks because they are at the core of finding out the relationship between the executives and the bank," said one senior banker.

"This isn't a simple issue to do with the presentation of the balance sheet."

"Inappropriate", the word used by Mr FitzPatrick in his statement on Thursday concerning his actions, was not sufficiently strong to describe what had occurred, in the source's view.

The use of the word inappropriate also rankled with a banking academic who did not wish to be named. "If you have a moral compass at all you know it's just wrong, wrong, wrong."

He said loans to connected parties and loans to dominant figures within banks were two of the four main reasons cited in academic literature for banking collapses.

He expected more such scandals to emerge as the Irish banking crisis deepens.

The other two reasons for collapses were treasury problems and lending to overheated property markets.

A senior business figure and a friend of Mr FitzPatrick's was of the view that what had happened at Anglo Irish Bank could not occur in say Bank of Ireland or AIB. Anglo's culture of being "deal facilitators" might be one explanation for what occurred, he said, as might be the respect staff in Anglo have for Mr FitzPatrick.

However, others were not so sure. "If this could occur over such a period of time in Anglo then it does raise the question as to whether it could happen elsewhere," said a public sector source.

The financial regulator, Patrick Neary, learned of the loans as far back as January of this year and, having taken legal advice, appears to have formed the view that no breach of the law was involved.

This, in turn, it would appear, meant the regulator could not apply a sanction. And the fact that the practice is neither illegal nor forbidden could be seen as making it more likely to have occurred elsewhere.

However, it is hard to see how anything other than a conspiracy could lead to such a practice remaining hidden from external auditors, and the regulator, for such an extended period of time.

Larger banks such as AIB and the Bank of Ireland have a more frequent turnover of people holding key positions, and would be less likely to agree to the move that occurred in 2004 when FitzPatrick went from being chief executive of the bank to being its chairman. For these reasons it is perhaps unlikely that such a practice could be kept hidden in larger institutions.

As for the regulator, it is unfair to blame someone for not finding out something that other people went out of their way to hide.

Ernst Young, auditors to Anglo Irish, apparently did not know what was going on. It would appear that at some point along the line information should have gone to Anglo's external auditors; the flow of information was cut off.

The problem for Mr Neary is the general view that he failed to clamp down on bank lending during the boom years, thereby contributing to the spectacular bust Ireland is currently experiencing.

That perceived basic failure is combined with a general view that too many scandalous practices have been allowed flourish within the financial sector, and that his office does not respond with sufficient robustness and independence once they come to light.

"No one would accuse our system of financial regulation of being robust, and this does not dispute that argument," said the academic source.

The damage to the regulator's reputation from this scandal is mainly caused by the fact that he first became aware of these loans in January from the books of Irish Nationwide. Nationwide temporarily harboured Mr FitzPatrick's loans so they did not feature in the year-end accounts of Anglo each year for a period of eight years.

Yet it would appear the Department of Finance was not told about the discovery until Thursday. In other words, the regulator knew about this scandal while consulting with the Minister for Finance, Brian Lenihan, about the Irish taxpayer providing guarantees for the Irish banks in September, and since then about the possible recapitalisation of the banks, and never mentioned the matter.

Thursday was the first the director of corporate enforcement, Paul Appleby, heard of the matter, and he is now giving the whole affair consideration from his law enforcement point of view.