Labour leader Eamon Gilmore has challenged the Taoiseach over his knowledge, when he was the Minister for Finance, of malpractices and 'crony practices' in the banking system, which led to the problems in banking and the economy.

Mr Gilmore said because of questions by Deputy Joan Burton and information obtained by The Irish Times under the Freedom of Information legislation, we now have some idea of the state of Brian Cowen's thinking while he was Minister for Finance.

Mr Gilmore said in 2007 Mr Cowen set up an advisory forum on financial regulation and financial legislation, to draft the heads of a bill to modernise financial regulation.

It met seven times between 2007 and 2008.

Mr Gilmore said Mr Cowen brought in people from the banking and financial institutions to become part of that committee, to draft the legislation.

Their brief, said Mr Gilmore, was to prepare 'cross-sectoral principles-led regulation' of the financial sector, which is the official way of expressing 'light touch regulation'.

The committee was wound-up in 2009 and the legislation that it was preparing never appeared.

Mr Gilmore asked Mr Cowen if he acknowledged that he made a mistake bringing in the bankers to write their own legislation; and secondly that he made a mistake giving them a brief to prepare 'light-touch' regulation, given what we now know about the consequences of such regulation.

Mr Cowen replied that between 2007 and 2009 there was a sea change in relation to the view of the regulatory system and its adequacy.

The Taoiseach said he was sure the members of the advisory group were recommended within the Department [of Finance].

He added that there has been a 'very close working relationship' between the financial services sector generally and the Department in terms of how to develop the sector, since the IFSC was first set up.

Mr Cowen said the new Financial Regulator has given a very clear statement of the sort of regulatory regime that he believes is required in the circumstances in which we now find ourselves, because of 'a regulatory system in the past which clearly wasn't adequate to meet the systemic risks which eventually emerged.'