The inquiry into the Irish Bank Resolution Corporation (IBRC) has been widened to investigate whether preferential interest rate deals were given to some large borrowers.

The Government announced last night that the inquiry into IBRC has been upgraded to a Commission of Investigation, headed by a High Court judge, and Opposition parties and TDs, such as Independent Catherine Murphy, are to be consulted on its scope.

While the Government previously ruled out such a Commission of Investigation on numerous occasions, the Coalition denied Opposition charges of a substantial u-turn.

Minister for Finance Michael Noonan said the commission will report by the end of the year, a number of months before the final date for a general election.

Ms Murphy claimed in the Dáil last week that businessman Denis O’Brien was paying a 1.25 per cent interest rate to IBRC when he could have been expected to pay a 7.5 per cent rate.

Mr O’Brien denied this claim, and said that Ms Murphy is “peddling” false material.

The inquiry will examine whether “the interest rates or any extension to interest rates or any periods for re-payments were given by IBRC on preferential terms”.

This will only include changes which resulted in a difference of €4 million in interest due when compared with standard rates for similar loans.

Mr Noonan said ordinary mortgages and small and medium business loans will be excluded from the inquiry, with the focus being on 32 large borrowers.

The commission will also cover similar ground to the previous inquiry - to be carried out by IBRC liquidators - which was announced following controversy over the sale of Siteserv to a company owned by Mr O'Brien.

This includes “transactions, activities and management decisions” which resulted in a loss of €10 million or more for the taxpayer.

However, the Commission of Investigation will be further widened to cover “internal IBRC governance procedures and controls” and whether these “were fit for purpose”.

Previous inquiry

The previous inquiry was criticised because of the involvement of auditing firm KPMG, which was also involved in the sale of Siteserv to a company owned by Mr O'Brien.

KPMG will not be involved in the new inquiry but will provide all relevant documentation assembled to date.

Mr Noonan said that when the initial review by the IBRC liquidators was established, the Government committed to further investigations “if something untoward was found”. He said “new allegations” have been made since then, including Ms Murphy’s.

The announcement of the inquiry led to increased Coalition tensions yesterday, with some in Fine Gael accusing Tánaiste Joan Burton of attempting to portray herself as keeping the senior party "honest".

Fine Gael ministers accused Ms Burton of pre-empting a Cabinet decision by "trying to put a Labour spin" on the announcement.

However, Labour sources said Ms Burton was not aware Mr Noonan was going to propose upgrading the IBRC investigaion until an hour and a half before the Cabinet meeting.

Ms Burton was asked about the initial IBRC review at a media doorstep at lunchtime yesterday and characterised it as a scoping exercise which would lead to a wider investigation.

Labour sources said this indicated she was going to tell Cabinet she was concerned that events of recent days, such as Ms Murphy’s Dáil allegations, may not be covered by the initial inquiry.

One Fine Gael minister said it was “Joan trying to make it look that she was keeping Fine Gael honest”.