Con Horan, formerly of the Financial Regulator's office, has said Anglo Irish Bank officials told him approvals weren't required for an allegedly illegal loan transaction.

The former head of banking supervision is the first witness from the regulator's office to take the stand at the trial of three former Anglo executives.

Former Finance Director Willie McAteer (63), Pat Whelan (51), head of Irish operations and former Chairman Sean FitzPatrick (65) deny providing unlawful financial assistance to 16 individuals to buy Anglo shares in July 2008.

It is alleged by the prosecution that the loans were outside the normal course of lending and that the three accused men were in breach of their obligations under company law.

In the witness box, Mr Horan has told the jury that in the Spring of 2008 the regulator held a positive view of Anglo's plan to dilute the 29 % stake in the bank which Cavan businessman Sean Quinn had secretly acquired.

The jury has already heard that Mr Quinn, once Ireland's richest man, gambled on the bank's stock using a financial instrument called Contracts for Difference and had to borrow 2 billion from Anglo to meet his losses.

By spring 2008 the global financial crisis was underway and Mr Horan said it was a 'serious worry' that if the Quinn CFD position unwound rapidly, a lot of Anglo shares would come on the market simultaneously driving down the share price.

While being cross examined by Pat Whelan's lawyers, he said this could have caused a run on Anglo and have threatened the stability of the financial system.

Mr Horan said that the regulator's office strongly encouraged the bank to find a solution.

Dublin Circuit Criminal Court has heard Mr Horan received a phone call from the bank's then Chief Executive David Drumm on July 9th in which they discussed placing shares with a group of Irish international investors.

The investors would take roughly 14% of the shares and the Quinn family would receive finance from Credit Suisse and JP Morgan to take another 14%.

Mr Horan said when he asked about the finance being provided to the so called Maple Ten investors, he was told by Mr Drumm that if one of these investors had a cash flow difficulty, Anglo would step in with short term funding.

He said he understood that this was 'just a contingency'.

Mr Drumm also informed him that Morgan Stanley were involved in the transaction and that this was 'important from a compliance perspective' in that 'it was an assurance.... everything would be done properly', he said

Mr Horan gave details of a conference call with people from Anglo and Morgan Stanley on the weekend before the transaction of July 14th.

He said he asked if any approvals were required from the Financial Regulator and was told that 'no approvals were necessary'.

Mr Horan said he pointed out that while he had no objections to the deal based on the information he had been given, it was up to Anglo and Morgan Stanley to make sure they were compliant with the regulations.

The jury has heard Mr Horan reported back to the Irish Financial Services Regulatory Authority at a meeting on July 23rd.

By this stage he was aware there was a problem or a delay with the Quinn family receiving funding from Credit Suisse and that Anglo had provided 169 million euro to finance the share purchase.

He said the Credit Suisse funding was important because the regulator didn't want to see Anglo's exposure to the Quinns increase.