It's not all that long ago that Germany was something of a paradise for the kinds of backroom dealmakers who made huge profits on insider trading schemes and other illicit financial dealings. Until the late 1990s insider trading wasn't even a crime. Neither was bribing officials of foreign governments, a lubricant in Germany's export machinery, and for a long time could even be declared as a tax write-off at home.

Fast-forward to 2006. Germany is well along the way to cleaning up its financial markets, adapting them to the challenges of a global marketplace for capital. As part of this process, which has been codified in financial market legislation outlawing insider trading and other abuses, the government created the Federal Financial Supervisory Authority, or BaFin, a powerful watchdog charged with regulating banks, insurance companies and securities markets. In theory, its scope and reach even exceeds that of the powerful US Securities and Exchange Commission.

It's not hard to see why the head of BaFin, Jochen Sanio, is something of a national figure, respected and dreaded alike. Stories are told of how Sanio, putting pressure on German corporate executives, actually pushed business leaders from their chairs to make a point. He is known for being tough, brash and uncompromising when it comes to improving the transparency of financial markets to attract global capital investment to Germany.

And that's why the corruption scandal that is engulfing his agency -- and could well cost him his job -- is all the talk in German newspapers on Tuesday. Prosecutors in Bonn, where the agency is based, are investigating charges of fraud, embezzlement and cronyism against six BaFin employees.

"There are black sheep everywhere -- and even a federal agency is not immune," writes the conservative daily Frankfurter Allgemeine Zeitung, easing into a commentary on the affair. The paper says Sanio's reputation for being tough on the industries that he oversees is now coming back to haunt him. "One of his core tasks is to oversee that the internal supervision of the financial services companies functions. But in its own activities it is exactly on this point … where Sanio's agency failed," the paper says.

The center-left Süddeutsche Zeitung also comments on the irony that Sanio appears not to have had a clue about what was going on in his agency on his watch, saying it appears that "he did not properly supervise his own agency and ignored important principles that are considered essential in the banking business." The Munich-based daily comments that it is nevertheless commendable that Sanio himself requested prosecutors to launch a probe, but suggests he must also take personal responsibility. "If he just sits out the affair, his reputation will be damaged," the paper says. "Sanio will then have to face charges that he only points the finger at others while he is lax in his own house."

The business daily Handelsblatt, which carries a page one story on the affair as well as a full page inside the paper under the headline "Out of Control," describes Sanio as "competent but smug" and says the volume of criticism that he faces shows how many enemies he has made over the years. The Düsseldorf-based daily says a report on the agency conducted by PricewaterhouseCoopers makes clear that Sanio knew of weaknesses in the internal supervision of his agency and failed to act. Nevertheless, Handelsblatt argues against sacking Sanio, whose "departure would be a loss for Germany's financial markets" and who "enjoys an excellent reputation internationally. … And a successor who could take up Sanio's role from one day to the next is not in sight."