From almost the very moment Allied Irish Banks PLC disclosed its massive foreign exchange losses, executives appeared intent on blaming the management team at its Baltimore subsidiary, Allfirst Bank.
Indeed, one of the first things Allied Irish chief executive officer Michael Buckley would say about the affair was that he was hugely disappointed that our Allfirst control procedures failed to uncover this situation at an earlier stage. 
But that, of course, raises a whole set of questions: How reasonable is or was it to expect that Allfirst, a local bank with 250 branches, was up to the task of monitoring the complex currency trading business? Likewise, for that matter, the state regulator in charge of supervising $16.5 billion-asset Allfirst.
According to Mr. Buckley, John Rusnak, a 37-year-old currency trader, lost $750 million on a series of forward foreign currency contracts involving the Japanese yen. Mr. Rusnak, who worked in Baltimore as half of Allfirsts two-person currency trading desk, then manufactured scores of bogus trades to conceal his mounting losses, Mr. Buckley said.
Many said that at its heart, this was a case of a rogue trader who may well have eluded detection even with more advanced systems. After all, they noted, even the Richmond Federal Reserve Bank, with its experience in regulating banks that have sophisticated currency trading operations, failed to spot the problems at Allfirst.
Still, the scandal that rocked Baltimores oldest and largest bank may well end up costing Allfirsts chief executive officer, Susan C. Keating, her job.
Already $82 billion-asset Allied Irish has suspended five top executives in Baltimore. On Thursday its board of directors announced that it would appoint an eminent person with standing and expertise in the financial services industry to investigate the incident to determine whether Allfirsts internal controls had failed and whether any changes may be necessary to prevent a recurrence.
In addition, the board expressed its extreme disquiet that controls and supervision of the treasury operations in Allfirst had failed to uncover, at a far earlier stage, the fraudulent activities.
The revelation of huge losses at Allfirsts currency trading unit Wednesday is a setback for Ms. Keating, who seemed to have revived her career at Allfirst.
Ms. Keating was named president and CEO of First Maryland Bancorp, as Allfirst was then known, on Jan. 11, 1999, and last month was appointed to Allied Irishs executive committee.
Before that she had been in charge of retail banking and branch operations in the mid-Atlantic region for NationsBank. She was dismissed from that post in August of 1995, reportedly for failing to meet NationsBanks performance standards.
Several observers said Ms. Keating, with her background in retail banking, would have been hard-pressed to supervise a currency trading operation.
If youre dealing with a self-sufficient unit that operates on its own, and you dont understand what they do, things can get very uncomfortable, said a former bank CEO who works now as a consultant.
A former Allfirst employee said of Ms. Keating, I dont think she has a tremendous understanding of what was going on at the trading desk.
This same observer, however, discounted Allieds contention that the trading losses were an isolated incident at its American subsidiary, noting that several top executives were transplants from Allieds Dublin headquarters.
It is unusual, though not unheard-of, for a retail-oriented regional bank to engage in currency trading. Moreover, the Allfirst primary federal regulator, the Richmond Fed, has experience working with currency trading from its oversight of money-center institutions such as Bank of America Corp. and Wachovia Corp.
Thats what makes this scandal so hard to understand, said Bert Ely, a consultant in Alexandria, Va..
This is the kind of thing [regulators] are supposed to be looking at, and when it does happen, it can be very expensive, Mr. Ely said. The problem looks like a classic rogue trader who figured his way around the system, but the question is how good is Allied Irishs system.
Allfirst is a state-chartered bank regulated by the Maryland Division of Financial Regulation, as well as the Federal Reserve.
Mary Louise Preis, the Maryland divisions commissioner, said state and the federal regulators last examined the bank in May 2001, but that the results of the examination are confidential.
We are working closely with the banks management to get a better picture of the situation and we have been reviewing the numbers and capital ratios and continue reviewing those to see that everything is appropriate, Ms. Preis said. We are confident that Allfirst and its parent are dealing with the problem and that there is no risk to customer deposits and the bank remains safe and sound.
Investigators are looking into the possibility that Mr. Rusnak may have stolen some or all of the $750 million that was reportedly lost. Initial reports Wednesday listed Mr. Rusnak as missing, but he met with federal prosecutors and agents from the Federal Bureau of Investigation Thursday and is cooperating with their investigation, according to his attorney, David Irwin, a partner in the Baltimore law firm of Irwin, Green, Dexter and Murtha.
Based on what I know, I think the investigation will reveal that he never stole money personally from the bank, Mr. Irwin said. The FBI knows where to find him, but there are no charges pending. I have persuaded them that no purpose would be served by putting him in the jail at this time. He is with his wife and two children at his home in Baltimore, and he has not talked with people at the bank.
Alex Beuzelin, a senior market analyst with the currency trader Ruesch International in Washington, said $750 million is a major loss, given that the size of the average currency trade is $1 million.
That amount is something you cant rack up in a couple of days its something that has to have been going on for some time, Mr. Beuzelin said
After the trading losses were discovered, Allied flew several members of its senior management team, including treasurer Pat Ryan, to Baltimore to express their continued support of Allfirst. Mr. Buckley remained in Dublin, but in a conference call Wednesday he said Allfirst had no plans to sell Allfirst.
I dont think this is an event that changes our thinking about what we want to do in the U.S., he said.
Even after accounting for $750 million of losses, Allied Irish and Allfirst remain adequately capitalized, said Mr. Buckley, who added that the company had no immediate plans to raise more capital.
Well allow future profits to bring our capital levels back up, he said during the Wednesday conference call.
Alan Kline and David Postal contributed to this report.
