Despite the warning, the Regulator approved another Sachsen investment vehicle, Sachsen Funding I, for listing on the Irish Stock Exchange as recently as June 2007, less than two months before the stable of off-balance sheet companies needed a 17.3bn bail-out from the German association of savings banks to keep Sachsen afloat. Sachsen Funding I invested $5bn in securities backed by US debt, including subprime mortgages.

According to Bafin, the German financial regulator notified its Irish counterpart in August 2004 that accountancy firm KPMG was conducting on-site inspections at Sachsen's Dublin unit, Sachsen LB Europe, and its funding conduits. KPMG's report, which was delivered to Bafin in April 2005, was critical of the Dublin operations. Excerpts published in Der Spiegel last week indicated that nobody at the bank had a clear view of the conduits' complex borrowing and investing activities.

These findings were communicated in writing . . . quoting relevant passages . . . to the Financial Regulator in Dublin at the time on the understanding that Sachsen LB Europe was regulated and supervised by the Irish authority, the source said.

Ormond Quay and Georges Quay are unregulated entities.

The Irish Financial Regulator refused to comment on the warnings, however the Bafin official said it had received communication from Dublin confirming receipt of the information.

The two regulators appear to disagree over which of them should take responsibility for the massive liquidity problems of the Sachsen investment vehicles. The Irish Regulator has repeatedly disclaimed any oversight of unregulated investment vehicles operating out of Ireland, while Bafin insists that local supervisory duties in Dublin should not fall to a foreign authority.

Representatives from the Financial Regulator and Bafin will have an opportunity to air their views when the Committee of European Securities Regulators (CESR) meets later this month. CESR will also meet EU internal markets commissioner Charlie McCreevy to discuss the contribution of credit ratings agencies to the recent market turmoil. An advisor to McCreevy told the Sunday Tribune the commissioner was seeking a "specific response" regarding the ratings agencies, but said the discussion could be more wide-ranging.

Opposition politicians have expressed concerns about the unclear lines of responsibility regarding Dublin-based investment vehicles.

"The regulator needs to come forward with a detailed comment on this, " said Labour finance spokeswoman Joan Burton. "It's important the Minister of Finance and the Central Bank satisfy themselves that the regulatory system is adequate and robust enough."

Fine Gael deputy leader Richard Bruton said: "It would be appropriate to call the regulator to the Oireachtas finance committee to look at these oversights."

Meanwhile, the Berliner Zeitung reported late Friday that an anonymous whistleblower from within Sachsen LB had told Leipzig prosecutors that the bank's executives manipulated financial evaluations to mask the risks associated with "untenable conditions at the subsidiaries in Dublin".