Patrick Neary, Chief Executive of the Irish Financial Regulator

The Irish Financial Regulator in response to pressure, has ordered audits of loans to builders and property developers at Ireland's banks.

The regulator has instructed accountants PricewaterhouseCoopers (PwC) to assess the extent to which the banks are delaying the collection of interest payments on loans; the extent of distressed loans and whether there has been deterioration in the value of the property and other collateral on which the loans are secured.

PwC will carry out an examination of the loan books of the six Irish-owned financial institutions covered under the State €485 billion bank guarantee scheme and check the level of interest payments being "rolled up" and the cash being generated by customers to repay their loans.

The Central Bank said earlier this month that two-thirds of outstanding private sector loans at the end of June, were property related.

At Irish Nationwide Building Society, 80% of the loan book relates to commercial property and almost half has financed the purchase of commercial property in the UK.

Patrick Neary, Chief Executive of the Financial Regulator appeared on RTÉ's Prime Time television programme two weeks ago and in a bizarre performance, tried to compartmentalize the banks' potential huge bad debts problems from the general European inter-bank liquidity situation.

At a time of crisis, Neary came across as a bewildered civil servant, who naively downplayed the risks of the property sector contraction for the banks.

Last week, Prof. John FitzGerald of the ESRI, termed Neary's comments in the television interview as "very worrying." The regulator needed to make it clear that he understood there was a problem with Irish banks and the property market, he said.

In the UK, Lord Adair Turner, a businessman with a wide range of experience, who took over as chairman of the Financial Services Authority last month, has said that regulators should be prepared to engage in a fundamental debate about how to set banks’ minimum capital requirements following state banking bail-outs in Europe and the US.

“When you’ve been through a crisis like this, it’s rather sensible to wipe the slate clean in terms of all your previous assumptions,” he said in an interview with the Financial Times.

Lord Turner also warned banks and insurance companies regulated by the FSA they would have to pay higher fees so the regulator could strengthen its supervision of institutions that pose a potential risk to the stability of the financial system.

“Bluntly, we have been doing supervision on the cheap,” Lord Turner said, arguing that the number of FSA supervisors monitoring large banks was much smaller than in the US.

In the Dublin market on Thursday, Bank of Ireland fell 8.4 per cent; Anglo Irish Bank closed down  8.1 per cent. AIB declined 5 per cent.

Finfacts Report: Global Financial Crisis: Urgent need for more transparency from Irish banks