German banks and financial institutions will review their operations in Ireland if the Financial Regulator pushes ahead with controversial proposals on corporate governance, a powerful German industry lobby group has warned.

Describing the proposals as "unfeasible and unviable", the German Irish Chamber of Industry and Commerce has told the Irish government that a number of its members had raised serious concerns about the proposals, and that they would review their investment in Ireland if they were insisted upon.

The chamber said the proposals would rule out the eligibility of nearly all current chairs of companies in the IFSC, while also disqualifying the majority of current board members of IFSC operations.

Without changing the proposals, the representative group warned that Ireland would "undoubtedly lose significant foreign investment" from banks and subsidiaries, and that its attractiveness to foreign investors would be diminished.

In a letter to Taoiseach Brian Cowen, the German chamber said the proposals would also "result in a dramatic reduction in tax revenue and an increase in unemployment with little chance for employees".

The group sent the letter to Cowen, following the publication last month of a consultation paper on corporate governance standards for banks and insurers.

The paper was put out for consultation by the Regulator, and proposes that a minimum of five directors be required to sit on the boards of banks and insurance companies. It also limits the number of directorships individuals can have.

In order to ensure the independence of chairmen, it proposes that any individual who has been involved at a senior management level of an institution within the past five years will be prohibited from acting as chairman.

While the Irish financial services industry is confident that the proposals will be amended to meet concerns, the German group has taken an aggressive stance.

In relation to the independence of directors and chairmen, it said: "These two points alone are unacceptable to German-owned IFSC operations."

It said the majority of those banks and insurers had between ten and 30 employees, and were wholly owned by their parent companies.

"Given that that foreign parent would have supplied large amounts of capital into their Irish subsidiaries, it can be safely assumed that they will not hand over control of their Irish operation to independent outsiders," the letter said.

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