Anglo Irish Bank chairman Sean Fitzpatrick dramatically resigned last night, admitting he had hidden a massive £87m in loans from the bank.
Mr Fitzpatrick's personal borrowings from the bank were more than twice the amount shown for loans to all 13 directors in last year's annual accounts.
Another high-profile director, Lar Bradshaw, until recently chairman of Dublin Docklands Development Authority, also resigned from the board.
Anglo Irish Bank said that a loan Mr Bradshaw held jointly with Mr Fitzpatrick was temporarily transferred to another bank prior to a year end audit.
"While Mr Bradshaw was unaware that this transfer took place, he believed that it was in the bank's best interest that he should resign," Anglo said. Mr Bradshaw is the former managing director of McKinsey Ireland.
As required under accounting rules, company figures showed that directors had loans of €41m from Anglo Irish. Analysts were shocked to learn last night that the true figure of directors' borrowings at present is actually €150m.
Mr Fitzpatrick's €87m makes up more than half of this. A statement from the bank said Mr Fitzpatrick would move his loans to another bank, understood to be Irish Nationwide, before the end of each financial year, so that they would not be recorded by the auditors. The loans were then moved back to Anglo Irish in a practice which continued for eight years.
In a statement, the Financial Regulator revealed that he became aware of problems surrounding loans from Anglo Irish Bank to Mr Fitzpatrick, following an inspection earlier this year.
"While it does not appear that anything illegal took place in relation to these loans, the Financial Regulator was of the view that the practices surrounding these loans were not appropriate," the regulator said.
"As a result, we continued to monitor and investigate this and as part of this process we advised Anglo-Irish Bank to ensure that these loans are reported in the annual accounts for 2008."
There will be considerable surprise among investors at this statement, as they would regard the size of directors' loans as a key piece of financial information. The revelations are hugely embarrassing and damaging for Anglo Irish Bank, which is the publicly quoted bank in most need of fresh capital, according to estimates by Davy Research.
Anglo has appointed director Donal O'Connor, former senior partner of accountants and consultants PwC as the new chairman of the bank. He is also chairman of the Dublin Docklands Development Authority.
Finance Minister Brian Lenihan said he was disappointed at the circumstances surrounding Mr Fitzpatrick's departure and said it was important corporate governance was upheld.
He said the change would not interrupt the "substantial progress" which has been made with Anglo Irish Bank in relation to the recapitalisation programme. Minister Lenihan said Anglo Irish remained covered by the banking guarantee. Government sources hope that plans for re-financing of the six Irish guaranteed banks can be finalised in the next few weeks.
Anglo said last night that all of the other directors at the bank have confirmed that they have not engaged in similar or any other inappropriate action in relation to their loans. All directors' loans are agreed on normal commercial terms and conditions, according to the annual accounts.