The Irish government has moved to revitalize the economy with an injection of up to €7.5 billion to recapitalize the three main banks including one, Anglo Irish, whose chairman Sean Fitzpatrick was forced to resign when it was revealed he had been hiding loans to himself of €87 million.

Less than a day later Anglo-Irish's chief executive David Drumm announced that he, too, was resigning.

Fitzpatrick, a former CEO of the bank, had been transferring the loans for eight years between two financial institutions before the group's September 30 year-end audit. The move was deliberately aimed at hiding the loans from shareholders.

According to legal experts Fitzpatrick did nothing illegal, but his actions were described by government ministers and finance sector chiefs as "inappropriate" for one in his position.

The revelation prompted widespread fury, particularly in the construction industry where tens of thousands have been laid off work in recent months and banks have been putting the squeeze on cash-strapped developers.

It's still not certain why the money was borrowed, although there is speculation it was to finance property investments by Fitzpatrick.

He refused to enlighten anybody. He told the Sunday Tribune, "I don't want to talk to you. I don't want to talk to any journalist."

The discovery of Fitzpatrick's personal loan-juggling has placed a large question mark over the future of the Financial Regulator Pat Neary. It emerged that his office knew of Fitzpatrick's borrowings for almost a year but did not inform the government.

Environment Minister John Gormley said Neary needed to "explain comprehensively what would appear to be his extraordinary complacency in the face of events at Anglo Irish Bank."

And Social Affairs Minister Mary Hanafin questioned why the information was not passed on by the regulator's office to Minister for Finance Brian Lenihan at the time he was negotiating with the banks on the bank guarantee scheme.

As fears escalated that the Anglo Irish loans scandal could destabilize Ireland's finances for years to come, the government on Sunday night announced its recapitalization scheme for the three main banks.

It is effectively taking over Anglo Irish with an investment of €1.5 billion for a 75 percent control of the bank. It is investing €2 billion each in AIB and Bank of Ireland after drastic cuts in their share prices.

In return for its investments in AIB and Bank of Ireland, the government will have a 25 percent say in "key issues" at the banks, including the power to appoint two more directors to their boards in addition to the two board members already to be appointed under the bank guarantee scheme.

The state's investment could rise to €7.5 billion, as the government will underwrite the issue of further shares, and both AIB and Bank of Ireland have "indicated an interest" in the state underwriting up to €1 billion of new shares at each bank.

Department of Finance officials said the state could earn an annual return of €470 million from its investments in the banks.

Anglo Irish is being charged 10 percent a year. The rates compare with 12 percent the British government charged its banks under a similar rescue scheme.

Lenihan explained his government's lower rates by saying he didn't want to charge too high a price to restrict lending.

Ministers rejected criticism that they were bailing the banks out of a crisis of their own making with taxpayer money. They said money from a government pension fund was being diverted to more profitable use and, simultaneously, giving a vital lifeline to the nation's banking system.

Taoiseach (Prime Minister) Brian Cowen said the government decision to invest in the country's three biggest banks will help to ease credit shortages for business.

"The purpose is to send a very strong signal to the markets about the stability of our financial system," he said.

The government said in its recapitalization announcement that the aim was not simply to support the banks, but also to provide assistance to small and medium businesses and mortgage holders.

A condition of the new measures is that the recapitalized banks will provide at least an additional 10 percent capacity for lending to small to medium enterprises in 2009 and that sustainable and productive business propositions will not be declined loans.

The recapitalized banks will also provide an additional 30 percent capacity for lending to first time homebuyers in 2009.

In addition, the banks will take action to assist householders who are in arrears with mortgages, and will work with mortgage holders to ensure that repossession is truly an option of last resort, with no repossession moves on a primary residence being made until at least six months arrears have accumulated.