It was called the “Green Jersey Agenda”. In the face of an unprecedented global financial crisis, Irish banks would tog out on the same team, loaning to each other in order to improve liquidity. The process is said to have been approved in regular discussions between the banks, the Financial Regulator and the Central Bank.

This weekend the Green Jersey Agenda has collapsed in bitter recrimination and controversy. Behind-the-scenes deals between Irish banks could expose the taxpayer to hundreds of millions of euro in losses, and have severely damaged the credibility of the entire financial system. Even after revelations of “dressed-up” deposits worth billions crossing the banking system, and secret €100m-plus loans to directors, the worst may still be to come.

The Sunday Times has learned that the Financial Regulator, the Central Bank and the Department of Finance all knew last summer of a scheme whereby control of 10% of Anglo Irish Bank was shuffled from billionaire Sean Quinn to 10 clients of the bank. Control of the stock was changed without informing the market.

Quinn, who owns the second-largest general insurer in the state, reduced his exposure to the bank shares. The secret deal prevented shares from flooding onto the market and crushing Anglo’s price. The individuals who bought the stock were bankrolled by Anglo Irish and now owe the state-owned institution €300m. The bank may not recover a cent.

The Quinn deal illustrates how far the authorities have gone to protect the system. It is now increasingly unclear what was regarded as acceptable behaviour when it came to implementing the Green Jersey Agenda. How much of what went on over the past year was official policy, and how much of it was the inevitable consequence of a lightly regulated financial sector?

Last Friday, the Financial Regulator “utterly rejected” suggestions that it “encouraged” transactions such as the ¤4 billion deposit made by Irish Life & Permanent (IL&P) with Anglo Irish Bank on September 30. The deposit bolstered the books of Anglo, which had been faced with the threat of nationalisation less than 24 hours previously. Having served its purpose of window-dressing Anglo’s end-of-year accounts, a few days later the money was withdrawn by IL&P.

IL&P, which has lost three senior executives including its chief executive Denis Casey over the controversy, accepts that the transaction was “wrong”. But the company claims the only motivation of the individuals concerned was to “support the policy objective of the Financial Regulator and the Central Bank”. The IL&P board includes Ray MacSharry, a former finance minister, and Liam O’Reilly, a former head of the Financial Regulator.

Anglo told The Sunday Times last weekend that all its transactions were “transparent” and “regular” and outlined in detail to the Financial Regulator in daily and weekly reports. “Institutions place reciprocal loans deposits with each other all the time,” Anglo said. “There was nothing unusual in this, although market conditions were obviously volatile.”

Those involved in these dodgy deposits have gone to considerable lengths to downplay their activities. IL&P denied the existence of the controversial €4 billion deposit with Anglo Irish when approached about it last month. “There was no €4 billion,” a spokesman for the bank said. “Money moves between banks all the time. The amount was immaterial. Your information is incorrect.”

Anglo said last weekend that it had received no queries about the deposit from the Financial Regulator or the Central Bank. So were these transactions part of a policy objective? How much of this activity was known to the authorities? And which aspects of the transactions took place with the Financial Regulator’s tacit approval?

To outsiders, the oversight of the financial-service sector in Ireland, a crucial part of the stability of the banking system and the economy, appears to be in disarray. “The regulatory system in its entirety needs to be rebuilt from the ground up,” said Brian Lucey, associate professor of finance at Trinity College Dublin. “The current system has failed us utterly on every level. It is a shambles, and the people involved have neither the confidence nor the organisational and technical skills to regulate a modern financial system.”

Having just invested €7.5 billion in the banking system, that should be a worry for the taxpayer. “It is incredibly damaging for Ireland’s reputation — it looks like cooking the books while telling potential investors all was well,” a New York-based fund manager said. “Ireland needs to get to the bottom of this.”

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