Irish government may nationalise two banks as crisis grows

Ireland was last night set to nationalise two of its biggest banks as the country continues to be battered by a severe financial crisis.

According to a source at one of the banks, the situation was out of hand now and quite like what happened at Royal Bank of Scotland (RBS) at the height of the global financial crisis in October 2008 when the British government bailed out the bank with a multi-billion pound infusion.

Meanwhile, the Irish government is expected to fully take over the weaker of the two, the holding company that operates commercial banking subsidiaries, Allied Irish Banks, with the Irish government holding 85 per cent of its shares. At the end of April, the finance minister Brian Lenihan had described the Bank of Ireland as the "the first of our financial institutions to emerge from the banking crisis" following a £3-billion capital raising from institutions.

The banks had also passed Europe-wide stress tests at the end of July conducted under the auspices of the Committee of European Banking Supervisors. The tests have come for increasing criticism in recent months.

According to a European Commission spokeswoman, the banks would face "severe" restructuring requirements linked to the country's bailout package. She said there would be a severe restructuring plan in place for Irish banks adding that there was nothing wrong with saving Irish banks, but it was going to be done using German, French, Italian money."

According to analysts, funds advanced would be loans that would need to be returned.