THE Anglo Irish bank crisis deepened last night, as it emerged a massive lodgment was used to mask its declining deposits.
Amid unprecedented market turmoil last Autumn, a temporary €4bn transfer from Irish Life & Permanent into Anglo Irish Bank was recorded, in effect, as a deposit from a customer rather than as a loan from another bank.
The deposit was made at the end of last September and served to flatter the group's financial position as it closed its financial year.
Separate probes into the transactions are under way by the Financial Regulator and the Office of the Director of Corporate Enforcement (ODCE).
"We are looking at any aspects of company law breaches," said a spokesman for the ODCE. "People are still trying to get the facts together."
The ODCE has been examining Anglo -- since it emerged in December that the bank's then chairman, Sean FitzPatrick, hid up to €122m in loans by shifting them temporarily to Irish Nationwide Building Society -- to determine whether it is appropriate to take legal action.
Finance Minister Brian Lenihan told the Dail yesterday that officials in his department knew since October about Irish Life & Permanent's transfer of deposits of up to €7bn during September.
Details of the transaction were contained in a report carried out by PricewaterhouseCoopers into the banking sector for the Government.
Sources said it was also outlined appropriately in a report by IL&P for the Financial Regulator the same month.
Mr Lenihan said the transaction involved Anglo placing funds with IL&P, while a subsidiary of IL&P, understood to be Irish Life Investment Managers (ILIM), put a similar amount as a corporate deposit.
The funds were included in Anglo's accounts as "customer deposits", serving to boost its end-of-year deposit base of €51.5bn to the tune of 7.8pc.
High deposit positions are seen as a fairly stable source of funding for banks, and investors keep a close eye on banks' deposits as a portion of loans.
Meanwhile, as the global banking crisis deepened during the course of August and September, the Financial Regulator and Central Bank encouraged institutions to make pools of cash -- or liquidity -- available to each other as the global banking system teetered on the brink of collapse.
The operation was dubbed in quarters as the 'Green Jersey Agenda'.
However, these inter-bank -- or wholesale -- loans would have been recorded as "deposits from banks", which would not have been included in the bank's keenly monitored deposit base.
"International funding dropped off the map as the credit crunch deepened.
The authorities would have been very encouraging of financial institutions here helping each other," said one source.
It is understood Allied Irish Banks and Bank of Ireland were each asked to provide €5bn of short-term, inter-bank loans to Anglo as it was the main focus of concern on the night of September 29--30, when the Government hammered out the €440bn guarantee scheme.
Both agreed in principle to extend this support measure but it was not taken up.
The Government last month asked AIB and Bank of Ireland to each place a €3bn inter-bank facility with Anglo as it nationalised the troubled bank.
Sources have stressed that these are normal bank lending arrangements, that they are accounted for appropriately, and do not support Anglo's deposit base.