Irish banks 'to be shrunk'

29 November 2010

The Bank of Ireland (BoI) and Allied Irish Banks (AIB) face a huge overhaul as part of the new €35 billion ($46.4 billion) bailout deal struck by the country's government, it has been claimed.

According to a report in the Financial Times, the two financial institutions are likely to be shrunk significantly from their current size, while AIB will effectively be nationalised and the government could up its stake in BoI from 36 to 80 per cent.

Smaller firms Permanent TSB, Irish Nationwide and EBS may also be merged and €16 billion worth of distressed loans is set to be diverted into Nama, a company specifically set up to acquire toxic commercial assets.

The possible creation of a publicly-owned "bad bank" to relieve debt-stricken financial businesses of their toxic loans is also still under discussion.

In a statement issued over the weekend, Central Bank of Ireland governor Patrick Honohan insisted that the aid package will restore market confidence and bring the country's arrears "under control".

By Asim Shah

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