Last week's confirmation that Australian banker Mike Aynsley had been appointed chief executive of Anglo Irish Bank was further proof ? if any were needed ? that the once high-flying property lender is heading for a wind-down, not a relaunch.

Aynsley, a risk and governance expert who has held senior positions with ANZ Bank and National Australia Bank, will be taking the helm at a financial institution that has not advanced a single loan since it was nationalised last January. Since then the bank has reported half-year losses of more than €4bn, with billions more on the way, requiring a recapitalisation using €3.8bn of taxpayer money. Moreover, some €27bn of its assets ? nearly half its loan book ? is expected to transfer to Nama over the next year. Anglo is effectively closed with scant prospect for revival.

Yet the new chief, who will take over executive functions from chairman Donal O'Connor on 7 September, will be tasked first of all with delivering a restructuring plan for the bank to the European Commission in November to conform to state aid rules, which say bail-out recipients like Anglo must demonstrate they are going concerns with a viable business strategy. Given Anglo's key market ? property development ? no longer exists, that strategy will have to involve some species of commercial or retail banking. O'Connor has suggested, somewhat fancifully, that the bank could assist Ireland's economic recovery by becoming a small business lender.

If that is the aim, appointing a risk specialist as Anglo CEO rather than someone with more customer-focused experience seems a peculiar choice, not least to the other institutions who are still competing ferociously with the zombie bank for a share of the deposit market. Despite not lending a cent for months, Anglo pays some of the best deposit rates in the Irish market which forces other banks to pay over the odds to fund their own loan books.

"They're screwing up the deposit market but adding no value, which creates this lunatic situation where everyone winds up paying more for deposits than they can charge for lending. People are fed up with it," said one market source.

Anglo has historically been a leader in deposit rates, as it traditionally found it more expensive to raise money in the wholesale markets than its more conservative, full-service competitors such as AIB and Bank of Ireland. Now that Anglo is owned by the state and has ceased lending, however, other bankers resent what they call a "distorting effect" on the market. Part of that distortion is directly a result of nationalisation, too, as many pension funds are not allowed to buy Anglo bonds now that the bank is state-owned, forcing its treasury to rely more on deposits.

For corporate deposits, Anglo pays typically between 3.5% and just under 4%, according to figures provided by Dolmen Stockbrokers. Bank of Ireland and AIB, according to published figures, don't even come close ? a sign that liquidity pressures have eased somewhat for the two big banks. However, Irish Life & Permanent, which is desperate to rebalance its loan-to-deposit ratio after shovelling mortgages out the door during the boom, has been forced to match Anglo. Irish Nationwide ? as well as foreign-owned banks Bank of Scotland Ireland and Ulster Bank ? have largely withdrawn from lending but also are paying high rates for deposits. Privately bankers say published rates are often lower than the real rates banks are prepared to pay to keep money from fleeing.

"It's an odd situation," said a senior banker at one of the larger domestic banks. "They're closed for business but still trying to gather deposits aggressively. The paradox is that nationalisation hasn't solved the problem." He said as a result banks were finding it extremely difficult to make profits under circumstances where margins were eroding.

"There is not a company in the world that can pay more for its raw material than it charges for a finished product."

Irish banks in general are still paying unusually high funding costs, both for deposits and wholesale money, both because of perceived risk and because of the presence of deposit takers like Anglo. It is these factors, according to the latest Central Bank lending survey, that are causing credit to contract. "An increase in banks' cost of funds and balance sheet constraints and greater risk perception contributed to the tightening," the bank said.

"Everyone knows you can basically pick up the phone to any bank and easily get 3.5% for your deposit," Davy analyst Emer Lang told the Sunday Tribune.

As many banking analysts have observed, the banks are still not repricing fast enough to cover increased funding costs, which means real margins are eroding. The furore that greet IL&P's decision last month to increase variable mortgage rates has spooked other banks somewhat, but bankers unanimously acknowledge that rates will have to rise to ensure some level of profits ? and overcome the high cost imposed by Anglo.

If Aynsley is genuinely expected to turn Anglo around rather than shut it down, he'll have to reckon with this problem too. Many market observers are sceptical.

"There is a sense that this thing is being wound down ? there are 1,700 people in there doing nothing," said one institutional investor. "The majority grew up in the Sean Fitzpatrick culture and the lending skills needed for business banking are not the same as property lending."

Up to 400 staff are expected to be made redundant in a rationalisation plan due next month, after which the bank will de-risk its balance sheet via Nama transfers.

Once that process is complete, the risk and governance chief's job may be effectively over.