The two most senior executives in Anglo Irish Bank have resigned over a controversial scheme to hide loans of €87 million (£81.2million) from shareholders, further deepening the Irish banking crisis.

The sudden departure of Seán FitzPatrick, chairman and former chief executive, and David Drumm, chief executive, forced the Government to push forward its €10 billion recapitalisation plan for the Irish Republic's main six financial institutions and to describe Anglo Irish as “systemically relevant”.

Fine Gael, the main opposition party, described Mr FitzPatrick's behaviour as “disgraceful” and called on the Government to sack the entire board and take control, as it is entitled to do under a €440 billion state bank deposit guarantee scheme launched in September.

Mr Drumm said his departure was “appropriate”, given the resignation on Thursday of Mr FitzPatrick after it emerged he had temporarily transferred €87 million in loans with the bank to another financial institution before the group's September 30 year-end. Each year, over an eight-year period up to 2007, Mr FitzPatrick temporarily transferred the loan, before the annual report was audited, to conceal it from shareholders

It is understood that the loans were transferred to Irish Nationwide, where the year end occurs on December 31. The loans would have been transferred back to Anglo Irish after September 30, so avoiding their disclosure to shareholders in either institution.

The Financial Regulator said it was made aware of the loans “following an inspection earlier this year”. It emerged later that it became aware of them during an inspection of Irish Nationwide's accounts, and contacted Anglo Irish Bank in January.

That prompted searching questions about the regulator. Shane Ross, an independent senator in the Seanad, the Republic's upper house, said that there had been a “complete and utter collapse of regulation”.

Senator Ross said: “There's a serious question has to be asked about the financial regulator. It is absolutely plain that the regulator knew about this much earlier this year - it appears he knew in January. What is the financial regulator doing?”

A non-executive director, Lar Bradshaw, who had jointly held a loan with Mr FitzPatrick, also resigned.

Mr FitzPatrick said in a statement: “The transfer of the loans between banks did not in any way breach banking or legal regulations. However, it is clear to me, on reflection, that it was inappropriate and unacceptable from a transparency point of view.

“One of the loans was a joint loan with Lar Bradshaw and I would like to emphasise that he had no knowledge of the temporary transfer of this loan.”

The resignations rekindled speculation about the viability of Anglo Irish Bank, which has lost 97 per cent of its value this year.

But Brian Lenihan, the Finance Minister, went out of his way to dissuade foreign investors from withdrawing their funds by explicitly naming the bank as part of a government initiative to recapitalise the six financial institutions covered by the state guarantee.

Mr Lenihan said. “This change will not interrupt the substantial progress which has been made with Anglo Irish Bank in relation to the recapitalisation programme.

“The Government will ensure financial stability within Ireland and will continue to take all necessary measures to ensure that systemically relevant institutions, such as Anglo Irish Bank, remain sound and viable.”

Joan Burton, the Labour economy spokeswoman, said: “I think the gravest of questions arise for the bank and the Irish banking system. Are there directors in other banks who have similar arrangements?”

Anglo Irish said that “all of the other directors have confirmed that they have not engaged in this or in any other inappropriate action in relation to their loans”.

Donal O'Connor, a non-executive director, has succeeded Mr FitzPatrick as chairman.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts