The Financial Regulator is proposing new rules to cover lending by banks and building societies to directors.
The move, which comes in the wake of an investigation into the issuing of secret loans to directors at Anglo Irish Bank, was announced by the regulator Matthew Elderfield during an appearance at the Public Accounts Committee this morning.
"Lending to related parties is a form of lending that has a special potential to give rise to conflicts of interest and abuse," said Mr Elderfield.
"Unfortunately, Ireland has witnessed some of this lending at irresponsible levels, and, in one notorious case, in a matter that was apparently designed to avoid detection," he added.
Mr Elderfield, who was appointed in October 2009 to succeed Patrick Neary, said his office intends to take action against such abuses and to address possible conflicts of interest by imposing a statutory Code of Practice concerning lending by financial institutions to related parties.
The code, he said would "ensure that such lending is on an arm's length basis and subject to appropriate and effective management oversight and limits."
The regulator said it would also be introducing a requirement for periodic reporting by banks and building societies to report to his office to enable it to monitor and enforce compliance with the Code of practice.
"Loans to bank directors and senior management have been subject to abuse and excess, if not outright subterfuge. Our proposals establish better checks and balances, tougher limits and clearer reporting to clean up these practices," said Mr Elderfield.
Mr Elderfield also told TDs the upcoming Central Bank Reform Bill, will provide his office with statutory powers needed to ensure those responsible for managing financial service providers are fit to do so.
He said weaknesses in regulation had contributed to the banking crisis.
Mr Elderfield said the regulator had been caught off-guard by the force and severity of the crisis and insufficient measures had been taken to slow the rate of bank lending in Ireland.
"With hindsight, it is now clear that stronger measures should have been taken and these should have been taken much earlier.
"Regulation in Ireland was not robust enough to prevent the asset bubble and the Financial Regulator's reliance on some boards and management to meet their corporate governance responsibilities was misplaced," he said.
"Although international pressures contributed to the timing, intensity and depth of the Irish banking crisis, the underlying cause of the problem was domestic and classic - too much commercial property and mortgage lending, financed by heavy foreign borrowing by the banks, which led to an unsustainable housing price and construction boom," he added.
