Chairman of Anglo Irish Bank Sean Fitzpatrick has resigned in a controversy over directors' loans.

In a statement released this evening, Mr Fitzpatrick said his resignation related to an €87m loan he had from the bank.

Minister for Finance Brian Lenihan has welcomed the appointment of Donal O'Connor as the new chairman of the bank.

The Minister said that Mr O'Connor, who has a substantial and impressive commercial track record, seems a natural choice to lead this financial institution in what is a challenging period for all financial institutions.

Minister Lenihan said Anglo Irish remained covered by the banking guarantee.

He said he was disappointed at the circumstances surrounding Mr Fitzpatrick's departure and said it was important corporate governance was upheld.

He added that the Government was making progress on recapitalising the banks.

The bank's board also announced that Lar Bradshaw, a non-executive director, has tendered his resignation.

In a statement, the bank said: 'Mr Fitzpatrick's decision to resign is based on the fact that, over a period of eight years to 2007, he temporarily transferred loans with Anglo Irish Bank to another bank prior to the group's year end.

'This transfer of loans did not breach banking or legal regulations. It was, however, inappropriate from a transparency point of view.'