TAOISEACH Brian Cowen has indicated the Government's €500,000 pay limit will have to apply in the appointment of Colm Doherty as the new managing director of AIB.

Mr Cowen said there were ongoing discussions between the bank and the Department of Finance, adding that the issue was in the public domain before the Minister had time to consider it.

"That's where matters rest, and I think it is important, in the interests of the effective management of the bank, which is in all our interests, that we allow that process to develop with a view to finding a resolution which is consistent with the Government's position."

The Taoiseach was replying to Fine Gael leader Enda Kenny, who raised the revelation that the bank proposed to the Department of Finance that Mr Doherty retain his existing salary of €633,000.

Mr Kenny described it "as the latest debacle in banking circles, where, effectively, the Government has been given another major snub following what happened with Bank of Ireland".

Mr Kenny challenged the Taoiseach to say if he supported the appointment given that the person was an insider, had been on the board since 2003, and was central to many of its lending practices.

He said he was sure the Taoiseach was aware of the reaction of people, particularly young people, to this situation.

"This is one of the major institutions which was centrally involved in the debacle we now find ourselves in, financially and economically."

Effectively, the Government was being told by the bank "you have no moral authority, you have lost credibility, and you are losing integrity and we will do what we like . . ." said Mr Kenny.

He said there was surely somebody among the Irish diaspora who would do the job for a half-million and clean up the bank in 18 months.

The person who proposed to be appointed was "centrally involved in lending practices in an institution which was centrally and partly responsible for the debacle we now find ourselves in", Mr Kenny added.

Mr Cowen said it was unfortunate "Deputy Kenny is engaging in a very strong personal attack . . . This is not a matter I wish to deal with in that way . . ."

Labour leader Eamon Gilmore said the proposed salary of the bank's nominated managing director was about 20 times that of a county council road worker.