The Irish Independent reports that Gardai will question a number of senior bankers associated with Sean FitzPatrick as their investigation into scandal-hit lender Anglo Irish Bank enters "a crucial stage".

Detectives will turn the screw on the probe, which has been ongoing for over a year, following Mr FitzPatrick's dramatic early morning arrest yesterday. Officers from the Garda Bureau of Fraud Investigation spent the day quizzing Mr FitzPatrick under legislation dealing with false accounting.

Breaches of these laws carry a penalty of up to 10 years in prison. Detectives have adopted a strategy of holding off on questioning a number of people until they are satisfied they are in a position to put specific allegations to them. Investigators are now said to be at that stage in a number of areas of the inquiry. A flurry of garda activity is expected amid hopes a file could be with the Director of Public Prosecutions (DPP) in the next few months.

Gardai arrived at Mr FitzPatrick's home in Greystones, Co Wicklow, at 6.20am yesterday morning. He was detained under Section 4 of the Criminal Justice Act and brought to Bray garda station.

There he was questioned under Section 10 of the Criminal Justice (Theft and Fraud Offences) Act, which relates to false accounting.

A team of officers also conducted a search of the former Anglo chairman and chief executive's home for several hours. They left the property at 1.10pm carrying a cardboard box used for storing documents and a large black holdall.

Mr FitzPatrick can be held without charge for a maximum of 24 hours. He was initially held for two six-hour periods yesterday. But his period of detention was extended by a further 12 hours shortly before 7pm on the orders of a garda chief superintendent. When rest periods are taken into account, Mr FitzPatrick's questioning could continue until at least midday today.

The investigation, led by Assistant Commissioner Derek Byrne, has been focusing on the movement of €7.45bn in deposits between Anglo and Irish Life and Permanent to bolster Anglo's books.

It is also probing an allegation that attempts were made to conceal details of loans to Mr FitzPatrick from shareholders and the controversial loan of €450m to a "golden circle" of 10 investors. More than 100 people have already co-operated with garda questioning.

Mr FitzPatrick became the first person to be arrested as part of the probe.

It is not clear whether the other key figures yet to be interviewed will also be arrested or will simply be asked to co-operate in the giving of statements.

Former chief executive David Drumm is among those yet to be questioned.

Pressure

Yesterday's developments heaped further pressure on Mr FitzPatrick, who is also facing legal action from Anglo.

The now-nationalised bank is seeking to recover €70m in unpaid loans he received.

Mr FitzPatrick stopped servicing a number of loans last year. He managed to conceal his borrowing from shareholders over a period of eight years up to 2007 by temporarily transferring the loans to another bank before Anglo's books were audited. His borrowings from the bank totalled €129m at one stage.

In a carefully worded statement yesterday, which did not mention Mr FitzPatrick by name, Finance Minister Brian Lenihan said: "I have always stated that there is an extensive garda investigation under way. I have been cautious not to prejudice that investigation and I am eager to see justice take its course."

Fine Gael's justice spokesperson Charlie Flanagan said he was pleased "the criminal justice system is progressing in a way that was intended".

Labour's finance spokeswoman Joan Burton described the arrest as "long overdue".

"I think that people in Ireland have been incredibly frustrated and angry that there have been no legal proceedings against any of the senior bankers involved in the banking crash."

The Irish Independent also reports that it is not the swiftest ever downfall in Irish business, but it may be the steepest.

Three years ago Sean FitzPatrick was chairing one of the largest companies in Ireland, worth €12bn. Anglo's business model was studied by banks all over Europe and copied slavishly here, including by AIB and Bank of Ireland.

At the bank's annual general meeting in 2007, FitzPatrick easily fended off the few isolated shareholders expressing negative sentiments.

The bank was reporting its 21st year of successive profit growth and even the subprime crisis, just starting in the US, could not dent the bullishness of FitzPatrick and his young chief executive David Drumm.

FitzPatrick told hundreds of shareholders assembled in Dublin, in February 2007, that they were to get a dividend increase of 20pc powered by the bank's cautious lending, which had resulted in only 0.5pc of loans turning sour.

Three years on and FitzPatrick, who once sat on blue chip boards like Aer Lingus, Smurfit Kappa and Greencore, found himself sitting in a small interrogation room at Bray garda station, answering questions about hidden director's loans and false accounting.

FitzPatrick, in some respects, remains the irrepressible and bullish 'Seanie' of old. But even he has been shocked at the vitriol aimed at him since announcing, in December 2008, that he moved loans ultimately worth €87m out of Anglo before each year end without telling shareholders.

FitzPatrick believed that the disclosure would relieve severe financial pressure on the bank.

It had the opposite effect.

Confidence in Anglo was sunk forever and its reputation for corporate governance shot to pieces.

Within a few weeks the bank was nationalised and its shares rendered all but worthless.

Despite the clamour for prosecutions at Anglo, Sean FitzPatrick is only one of a cast of characters that contributed to its demise.

David Drumm ran the bank on a day-to-day basis from January 2005, and ramped up its lending during his period.

Drumm will at some point also have to explain his role in the 'golden circle' loans provided to a group of 10 investors to keep a chunk of Anglo Irish shares, owned by Sean Quinn and family, off the open market.

Drumm was also in charge of the bank when €7.2bn was deposited with Irish Life & Permanent (IL&P), while a deposit for the same amount came to Anglo from a subsidiary of IL&P.

These deposits were swapped over when Anglo Irish was on the financial danger list and was barely able to fund itself. Investigations are now looking at whether these deposits flattered Anglo's annual results, presented to investors at a time when Anglo's whole business model was being questioned.

It would appear at this point that FitzPatrick's main problem is the loans, rather than the two other issues. In that context arresting and questioning FitzPatrick is to be expected.

Loans

While over 40 Anglo staff are believed to have been aware of the loans, nobody presumably knows more about them than FitzPatrick himself.

While outside observers may find the idea of FitzPatrick moving loans out of the bank without telling shareholders distasteful and wholly inappropriate, the only question that matters to the authorities is whether it was illegal or not.

Director's loans are allowed under exemptions granted in the Companies Act 1990, as long as they don't make up more than 10pc of the bank's assets and in FitzPatrick's case this is not a problem.

The other requirement is that the loans must not be provided on terms different to those available in the market. Again FitzPatrick's statement suggests they were given at market rates and "fully secured''.

If FitzPatrick can fulfil these criterion, the legal issues will come down to other sections of the Companies Act, which talk about "proper books of account'' being presented and also about company directors providing false information with the intention of making a profit or causing a loss.

Here fine legal judgements will have to be made by a court, if a prosecution happens at some point.

All of these judgements will have to be made against an angry tide of public indignation over what happened in Irish banking in recent years.

This is understandable. The behaviour of many bank executives was simply deplorable at the tail end of the Celtic Tiger. But nobody has ever been put on trial for wrecking an economy.

Public indignation is no good to the garda investigators or the officials from the corporate enforcer's office. Instead they need evidence, proof and a convincing legal argument.

The Irish Times reports that Greek Premier George Papandreou upped the stakes in his game of brinkmanship with German chancellor Angela Merkel by saying he may turn to the International Monetary Fund (IMF) if the upcoming EU summit does not deliver political agreement on a last-resort plan for Greece.

His comments follow remarks by Ms Merkel on Wednesday in the Bundestag backing calls for steps allowing countries to be expelled from the euro zone if necessary. The prospect of a a bail out for Greece is deeply unpopular in Germany.

“It’s an opportunity to make a decision next week at the summit,” Mr Papandreou told reporters yesterday, having declined to say on Wednesday whether he wanted a decision from the summit.

Mr Papandreou argues that agreement on a rescue mechanism would relieve pressure on the penal interest rates his administration is paying on the Greek national debt as it prepares to refinance some €20 billion in the coming weeks. “This is an opportunity we should not miss. When you have that instrument in place, that could be enough to tell the markets hands off, no speculation, let this country do what it’s doing.”

But Jean-Claude Juncker, the prime minister of Luxembourg and head of the euro group of finance ministers, suggested in strong terms yesterday that the deal was not done.

Greece needs to “do its homework” and reduce its budget deficit before expecting EU help.

“Greeks must know that there will be solidarity only if they get their shop in order,” said Mr Juncker, who chaired a meeting last Monday at which the euro group opted to provide loans to Greece if needed.

There were conflicting signals from Germany yesterday as certain sources said IMF involvement could help overcome potential legal difficulties in the country’s constitutional court.

Another German source, however, urged caution. “The chancellor hasn’t excluded any option and that’s where the buck stops. Anything else is wild interpretation.” The mixed messages from Germany are read in political circles as a stalling mechanism in the build-up to the summit.

“That would be quite a departure,” said a senior Brussels source of suggestions that IMF might provide funds for any Greek rescue.

“The equation is simple. Does Ms Merkel want the next summit to be dominated by her being under pressure over Greece?”

As the sparring continued yesterday, the premium investors charge for holding Greek debt rather than German bunds rose as high as 319 basis points.

This means Athens would have to pay about 6.3 per cent to borrow on markets, a rate Mr Papandreou says raises “ethical” questions as he makes drastic budget cuts.

In signs of further tension in the euro zone, Spain urged Ms Merkel to avoid talk of possibly expelling fellow members from the single currency, saying such comments could be misconstrued.

The Irish Times also reports that the Irish banks should be recapitalised “as swiftly as practicable”, but “transitional arrangements” will be required to bring their capital levels into line with new bank rules, the head of financial regulation, Matthew Elderfield, has said.

In his first public interview, Mr Elderfield told The Irish Times that the cost of a “big bang” recapitalisation to instil market confidence in the banks would be “manageable” for the Government.

There would have to be “transitional arrangements” for the banks to reach the “end destination” for capital thresholds to be set under the new bank capital rules, known as Basel III, he said.

Mr Elderfield said the regulator was assessing potential losses on the non-Nama loans under likely and stressed scenarios, both of which would be taken into account in the recapitalisation exercise.

The Government will announce capital requirements for the banks later this month, coinciding with first loan transfers to the National Asset Management Agency (Nama).

“The specific target capital level and the amount of time that we are going to let the banks have is something that we will have to await in the Government’s statement,” said Mr Elderfield.

“There will be a regulator-Central Bank statement and a Government statement in due course.”

The Basel III rules which are due imminently will set “fairly rigorous capital requirements”, he said, and many banks would be competing to get to that level.

“Therefore, the recapitalisation exercise has to command market confidence, that the banks are put on a stronger footing, that they are well on the way to meeting the capital levels,” Mr Elderfield said.

It was “important to make good, fast progress and to make sure that recapitalisation moves the banks to a strong capital position as soon as practicable,” he said.

Analysts estimate that AIB requires up to €4.4 billion and Bank of Ireland up to €2.8 billion to bolster their capital ratios.

Mr Elderfield said he would introduce “risk based” regulation “backed by some steel, and that requires this credible threat of enforcement.

“The rule book needs to be tightened. I don’t think it needs to swing to the extreme, but there needs to be some tightening up, particularly for the banks.”

The Irish Examiner reports that Elan, the Irish pharmaceutical company, saw its share price slip by 4c yesterday on the back of seven more cases of a rare brain disease being reported amongst users of its multiple sclerosis treatment Tysabri.

The update came from US drug company Biogen Idec, which co-owns Tysabri, and means that instances of PML – a potentially fatal brain disease which is a possible side effect of Tysabri – have risen from 35 to 42 in the four weeks up to March 10.

Elan’s Dublin share price slipped by 4c, or 0.73%, to €5.46 yesterday, on the back of that news and the announcement that Phase 3 trial results from in-research Alzheimer’s drug Bapineuzumab look set to be put back from late 2011 to the middle of 2012, mainly due to test recruitment issues.

While the PML case update is disappointing, it was fully expected by both companies, and is still well within the one case per 1,000 Tysabri users risk ratio as set out on the product’s labelling.

The geographic split of the latest PML cases were weighted outside of the US – with 15 instances there, 24 in the EU and three "elsewhere".

Tysabri’s performance has been good of late – last year, the drug’s sales grew by 30%, helping to boost Elan’s 2009 group revenue by 11% to $1.1 billion (€0.8bn).

Elan’s management has done away with fixed patient number targets, after scrapping its original forecasts of reaching the 100,000 patient mark by the end of this year.

Some industry insiders have suggested current growth levels could result in Elan actually reaching that user figure by the end of 2013.

In total, nine Tysabri users have died after contracting PML – roughly 21% of all cases.

Analysts were, yesterday, making note of the monthly rise – seven cases being reported in March against four during the previous four weeks.

"The increase in PML cases is expected, but we have to await the reaction of regulators as the incidence in patients on the drug over 18 infusions increases," commented Ian Hunter of Goodbody Stockbrokers.

That statement refers to the rise of PML instances among people taking Tysabri for more than a year and a half and those using it for more than two years.

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China’s exports powerhouse lifts wages  -- The southern Chinese province of Guangdong, which accounts for about 30 percent of the country's exports, plans to raise its minimum wage by more than 20 percent, the China Business News newspaper said on Thursday.

Berlin shifts stance on IMF role in Greece - - Germany’s position on helping Greece solve its financing needs isn’t “clear” nor “definitive,” the Dutch acting Finance Minister Jan Kees de Jager said during a parliamentary debate in the Netherlands, on Thursday night. tonight.

Alarm was raised on Lehman - - the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008 by employees at then rival Merrill Lynch.

US health reforms ‘will cut deficit’ - - On Thursday, the Congressional Budget Office provided a key cost estimate on the Obama reform plan. The CBO said the whole package will cost $940 billion over 10 years to provide expanded insurance coverage. In addition, the new plan could reduce the deficit by $138 billion over the first 10 years -- $20 billion more than the Senate bill.

Argentina prepares for debt swap offer - - Argentina’s benchmark dollar bonds rose to a two-month high after the government filed an updated $15 billion debt shelf offering with the US Securities and Exchange Commission, leading to speculation the country is moving closer to restructuring its defaulted securities.

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The New York Times reports that the idea of requiring giant banks to develop contingency plans that would spell out their orderly demise in a financial crisis gained support on Thursday from major international regulators.

The Basel Committee on Banking Supervision, a forum for international cooperation on financial regulation, endorsed the idea, while Lawrence H. Summers, the director of the National Economic Council, and Daniel K. Tarullo, the Federal Reserve governor who oversees the central bank’s regulatory duties, spoke in favor of it.

The endorsements come as the Senate debates a sweeping overhaul of financial regulation aimed, among other things, at buffering the economy from the kind of systemic threats that companies like Lehman Brothers and the American International Group posed in 2008.

But it is not clear whether such contingency plans, also known as living wills, will be worth more than the paper they are written on.

Democrats and Republicans agree that taxpayers should never again have to bail out financial institutions that have become so large and interconnected that they are deemed “too big to fail.”

But economists, lawyers and policy makers are uncertain about how to handle the problem in a way that is sufficiently credible so as to deter the kinds of risk-taking that brought the financial system to the brink of disaster.

“In light of what has happened over the past two years, it is imperative that governments convince markets that they can and will put large financial firms into a resolution process rather than bail out its creditors and shareholders,” Mr. Tarullo said on Thursday night in a speech in Armonk, N.Y. “Yet no one can guarantee that future resolutions of systemically important firms will proceed smoothly or predictably.”

Mr. Summers, who said that an overhaul of financial rules was a priority of the Obama administration, described “resolution authority” as one of six major goals the legislation should achieve.

“It is wrong that taxpayers thousands of miles from Wall Street should be at risk because our financial system gives authorities no choice but to commit taxpayer money or to accept collapse and chaos,” Mr. Summers said. “Without the prospect of failure, it is difficult to contemplate the application of market discipline.”

He added: “That is why we must develop a means to manage the failure of financial institutions. That is why we must insist that institutions go through the exercise of planning for their dissolution in the event of crisis before a crisis comes. Our financial system will not be fail-safe until it is safe for failure.”

The 44-page final report of the Cross-Border Bank Resolution Group of the Basel Committee called for “firm-specific contingency planning” that would help the most interconnected financial companies survive a crisis or, if necessary, be dismantled in an orderly fashion, without risking a global financial crisis.

Nout Wellink, the president of the Dutch central bank and the chairman of the Basel Committee, said its recommendations made “meaningful progress toward addressing systemic risk and the ‘too big to fail’ problem.”

But as Mr. Tarullo said on Thursday, the goals of financial stability and market discipline are sometimes in tension.

The issue does not easily lend itself to partisan divisions: it was under President George W. Bush, a Republican, that the federal government, fearing a financial panic after the bankruptcy of Lehman Brothers, swooped in to rescue some giant financial companies.

Even so, there have been some differences.

Democrats have been inclined to have the Federal Deposit Insurance Corporation, which has a long history of arranging bank failures, play a similar role for large financial institutions, and they would like to see large banks pay into a fund that would be used to liquidate a failing company.

Republicans would like large financial companies to go through normal bankruptcy proceedings as much as possible, and they fear that a fund would symbolize a standing, if implicit, offer of a government bailout.

The two members of the Senate Banking Committee who have been working most closely on the issue, Mark Warner, Democrat of Virginia, and Bob Corker, Republican of Tennessee, said on Thursday that they were in broad agreement on how the “resolution authority” should work, even if points of dispute remained.

Resolution should be a “last resort” and “so painful that no rational management team” would ever prefer it to bankruptcy, Mr. Warner said in a talk at the National Press Club.

Mr. Summers, who spoke before Mr. Warner and Mr. Corker, called for higher capital and liquidity requirements for banks, as well as strengthened regulation, a fee on the largest and most leveraged firms, and restrictions on risk-taking by banks.

The NYT also reports that China’s reluctance to allow the value of its currency to rise “is a real concern” to both the United States and the country’s other major trading partners and could be subject to negotiations in coming weeks, the American ambassador to China said on Thursday.

At the same time, a Chinese trade official offered the first hint of flexibility on the issue, saying his organization was polling more than a thousand Chinese manufacturers on how a change in exchange rates would affect their business.

In a speech to students at Tsinghua University in Beijing, the ambassador, Jon Huntsman, said that economic problems in the United States had increased pressure there for a change in the value of the renminbi, which China currently ties to the value of the dollar. That has kept Chinese exports comparatively cheap and, some contend, hampered other nations’ recovery from the global recession.

“My Chinese friends like to pitch this as just an American issue. I like to say that there are many countries that feel the same way,” Mr. Huntsman said. But he focused on the growing political opposition from Americans who say the currency policy is hurting them.

“This is a real concern to people in my country. Unemployment is almost 10 percent. It’s a difficult economic period,” he said. “I’d be misleading you if I left you with the impression that this wasn’t a very, very important issue in the United States, and will continue to be.”

Tensions between China and United States have also risen this year after the United States’ decision to sell arms to Taiwan. China also reacted sharply after President Obama’s recent meeting with the Dalai Lama, the Tibetan religious leader.

“To put our relationship on a more stable and secure footing, we have to de-link our differences on bilateral issues from our cooperation on global issues,” Mr. Huntsman said.

The Treasury Department is under growing pressure to brand China a currency manipulator in a report to be issued next month. That could open the door to retaliatory measures that could increase the cost of Chinese imports and raise the risk of a trade war between the two nations.

In his speech at Tsinghua, one of China’s elite universities, Mr. Huntsman said he anticipated that recent disruptions in United States-China relations would be rapidly overcome.

In a question-and-answer session after his speech, Mr. Huntsman said citizens of both nations should listen to both sides of the dispute, then “allow negotiators to find a pathway forward.” China’s foreign ministry spokesman, Qin Gang, echoed that at a briefing on Thursday, saying that the American demands were not fair, but that the dispute “requires that both sides be calm and rational.”

Separately, the China Council for the Promotion of International Trade disclosed Thursday that it was surveying experts in 12 export-related industries to determine how badly they would be affected by a rise in the renminbi’s value.

The quasi-government group’s vice chairman, Zhang Wei, predicted that labor-intensive industries like garment and furniture makers would be hard hit by more valuable renminbi.

“Their profit margin is already very narrow,” Reuters quoted Mr. Zhang as saying. “So for these companies, the consequences would be disastrous.”

Mr. Huntsman also urged China to “take immediate action” to force Iran to comply with international inspections of its nuclear program, and said he hoped the two nations could agree this year on verifiable goals to reduce emissions of greenhouse gases.