Ireland is rapidly emerging as a festering sore in the financial system of Europe after the latest banking scandal that has claimed the CEO and two other executives at Irish Life & Permanent. The country’s largest bank/finance/insurance group is in turmoil after it emerged it helped the now nationalised Anglo Irish bank falsify its deposit book.

The country’s banking system is being exposed as a cesspit of corrupt behaviour — one bank has been nationalised after dodgy loans exposed poor governance (Anglo Irish); two others have had to be bailed out with even more money than originally forecast (Bank of Ireland and Allied Irish); the CEO, the finance boss and the Treasury head of Irish Life financial group have been forced out after being involved in dodgy dealings with the nationalised bank, and the government is borrowing billions of euros and cutting billions in spending to try and prevent further problems emerging.

We now have the case that the board and senior managers of Anglo Irish were fiddling the bank’s accounts to hide dubious loans to the chairman and others repeatedly over a number of years, while at the same time over 7 billion in euros of deposits were ‘parked’ in the bank by Irish Life, with the management in on the deal, but the board claiming no knowledge.

Anglo’s former chairman Sean Fitzpatrick not only quit the bank, but the boards of Aer Lingus, the airline, and Smufitt Kappa, a packaging company.

Harsh commentaries in the Dublin media have berated the banks and their executives for their conduct.

“The scandal at Irish Life Permanent and Anglo Irish Bank threatens the entire future of Ireland’s banking system,” thundered a comment piece in the Irish Times at the weekend.

The cost of buying insurance against Irish government bonds hit record highs on Friday, having almost tripled in a week. Debt-market investors now rank Ireland as the most troubled economy in Europe. The banking system is all but bankrupt, senior business figures are under a cloud and the outlook is glum as a housing slump continues to wreak havoc on the country.

Ireland may have to be bailed out if it can’t right itself. But by whom remains the question.

Pledges made by the Irish Government to support its banking sector amount to 220% of the country’s annual economic output. The total loans held in Irish banks are more than 11 times the size of the economy. These have been guaranteed by the Government, which now clearly doesn’t have enough money to meet claims for a small portion of those funds.

Following the scandal at the now nationalised Anglo Irish Bank over undisclosed loans to the chairman, some board members and senior managers, there are now fears more problems may be in the balance sheets of the country’s other stricken banks.

Ireland will borrow an additional 15 billion euros this year, taking national debt to hit 70 billion.

Bank shares slumped late last week after the 7 billion-euro ($A14 billion) recapitalisation of Bank of Ireland and Allied Irish Banks. The shares plunged 28% and 42% respectively on Friday.

That was the day after the CEO and CFO of Irish Life & Permanent resigned after revelations that it kept 7.45 billion euros on deposit at Anglo Irish Bank in the days leading up to the end of the bank’s financial year to September 30. That gave the impression that Anglo’s deposit base and financial health was better than expected. Rather than a straight inter bank deposit, it was done through a subsidiary of Anglo life, and therefore gave the impression of being a normal deposit.

Not helping was the comment of the Irish Life chairman, Gillian Bowler, that the group’s CEO, Finance boss and Treasury director resigned, not for the deposit fiddle, but the manner in which it was done.

But it would seem some or all of the funds placed with Anglo Irish, were actually provided by it to Irish Life.

Finance Minister Brian Lenihan told the Irish parliament last week he was “…advised that Anglo Irish placed funds with Irish Life & Permanent. A non-bank subsidiary company of Irish Life & Permanent then deposited a similar amount in Anglo as a customer deposit.”

Bankers say by treating it as a customer deposit rather than an interbank borrowing, Anglo Irish was able to improve its loan-to-deposit ratio at year end.

According to details in the IL&P statement, Irish Life Assurance deposited 7.45 billion euros with Anglo Irish during September, including 4 billion on September 30, the last day of Anglo Irish’s financial year and the same day the government introduced its blanket guarantee of all 440 billion euros in liabilities of its six domestic lenders.

IL&P has claimed it was its “understanding of the express wish of the regulator and the central bank” that Irish financial institutions support each other in the credit crunch

That’s rubbish — the two groups were rorting the system and falsifying AIB’s accounts. The country’s regulators didn’t question the March deposit fiddle.

And there’s also an inquiry continuing into how a wealthy Dublin businessman snapped up a 25% stake in Anglo Irish Bank and only disclosed a holding of 15%. The stake was sold, but there are allegations that the bank was in on a plan to put together a group of 10 wealthy businessmen to buy the missing 10% to help the powerful business figure.