DUBLIN (Reuters) - Ireland casts its drive to tighten up on banks and markets as the next leg of its economic recovery, but it risks more than most in the post-financial crisis pursuit of more aggressive regulation.

Until 2008, Dublin had boomed for a decade on the back of a laissez-faire policy model that spurred growth through a combination of soaring property prices, high lending and tax breaks for incoming businesses.

That has evaporated in a year of scything budget cuts and state bailout schemes that have helped to avoid a Greek-style public debt crisis.

But policy-makers say to keep investors in Ireland they must head off concerns there is more to come. To prove they are serious they have unified regulation in a single body, appointed outside management to run it and funded a jump in staffing.

"I once believed in the concept of light touch and self-regulation. I was naive in the extreme to believe that," said Jim Power, chief economist at Dublin financial services group Friends First, a unit of Dutch insurer Eureko.

"Too much regulation is always a danger, but too much is better than too little. If businesses are driven away by the regulatory regime, we would probably be better off without them in the first place."

Fines meted out for regulatory breaches have jumped to more than 3.5 million euros in both 2008 and 2009 from only a few thousand the year before and in general analysts say the new regime is likely to raise costs for business.

But lawyers and analysts also say there are signs it could yet prove a net winner in attracting investment, given conditions are changing across Group of 20 countries in the campaign to increase transparency and clamp down on tax havens.

"On the funds side, we have seen that the pressure on 'offshore tax havens' has resulted in a very significant move of funds to Ireland as a choice of domicile as customers demand a product domiciled in a 'respectable' EU/EEA country," said Joe Beashel, a lawyer specialised in regulation with Matheson Ormsby Prentice in Dublin.

"Will tighter regulation turn potential business away? I guess that's the $64,000 question. My sense is that the issue that is most likely to turn business away is lack of policy certainty at the financial regulator."

Credibility will be crucial if Ireland's two biggest banks Allied Irish Banks and Bank of Ireland.