By Padraic Halpin and Andras Gergely
BRAY, Ireland, March 18 (Reuters) - Irish police have arrested Sean FitzPatrick, the former chairman of Anglo Irish Bank, as part of a fraud investigation seen as vital to Ireland's efforts to win back investor confidence.
The government has said it would investigate fully the role of nationalised Anglo Irish and other banks in the collapse that brought a spectacular period of growth to an abrupt end.
It has announced tough new regulatory measures but until Thursday no arrests had been made.
"It is Sean FitzPatrick," a source familiar with the situation told Reuters on condition of anonymity. Irish public radio RTE also named the arrested man as FitzPatrick.
Police said they had arrested a man in his early 60s and held him in Bray, a seaside resort just south in Dublin, after an early morning search, but did not name him or the institution involved in their inquiry.
The finance ministry, which has pumped 4 billion euros ($5.5 billion) of capital into Anglo, also refused to name the man, and limited its response to a brief statement.
"There is an extensive Garda (police) investigation under way," said the statement, adding it was "eager to see justice take its course".
FitzPatrick, who was CEO before becoming chairman, said in December 2008 he had kept shareholders in the dark for years about loans worth 84 million euros he had received from Anglo Irish Bank, which had to be nationalised in early 2009.
The regulator has also been investigating whether Anglo Irish used more than 7 billion euros of short-term deposits from bancassurer Irish Life & Permanent to mask large customer deposit withdrawals.
STEP IN RIGHT DIRECTION
Many investors avoided all Irish assets in the period after Anglo's nationalisation but Dublin has been working hard at restoring its reputation by taking drastic steps to cut its budget deficit and overhauling its regulatory system.
Taxpayers have been demanding tough action against those held responsible in the financial sector after they had to pick up the bill for fiscal reforms and the recapitalisation of Anglo Irish, Bank of Ireland and Allied Irish Banks.
"Given the mood of mounting anger in the country at what the government has been forced to do to correct the public finances, it's absolutely essential that justice is seen to be done," said Jim Power, chief economist at financial services firm Friends First.
"This is certainly a step in the right direction, but of course it remains to be seen how this will be followed through," Power said.
Anglo, which carved out a niche in the property sector, will transfer at least about 28 billion euros of related loans to the National Asset Management Agency (NAMA), making it the biggest contributor to the government's "bad bank" scheme.
It is also expected to post the biggest loss in Irish corporate history around the end of March. A report in Thursday's Irish Independent newspaper said Anglo's pretax loss for the 15 months to the end of December would come in at almost 12 billion euros, which would be more than Ireland collects in income tax per year.
There are few obvious precedents for Thursday's arrest, although in Germany a trial has begun against the former head of IKB, Stefan Ortseifen, on charges of misleading investors about the state of the bank's finances, charges which he denies.
(Additional reporting by Barbara Lewis; Writing by Andras Gergely; Editing by David Cowell)
($1=0.7321 euro)
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Keywords: IRELAND BANKS/ARREST
(andras.gergely@reuters.com; +35315001518; Reuters Messaging: andras.gergely.reuters.com@reuters.net)
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