BRUSSELS (MNI) — Ireland’s government is considering creating a
second “bad bank” to remove all the toxic loans from its embattled
financial system and allow its banks to fund themselves again, national
newspaper the Irish Times reported on Thursday.

Officials from the International Monetary Fund, the European
Central Bank and the European Commission are currently in Dublin
thrashing out the details of an aid package said to be worth around E85
billion, which will come with strong conditions attached and involve a
restructuring of Ireland’s banking system.

Ireland has already created one bad bank, the National Asset
Management Agency or NAMA, but market fears about the cost of the
banking sector have forced it to take additional action.

Under one plan, the remaining operations of Ireland’s nationalised
lenders, Anglo Irish Bank and Irish Nationwide, would be merged to
create a “bad bank” which would “cleanse the other four banks of
troubled loans,” the Irish Times reported, quoting people familiar with
the situation.

It said officials are also “exploring the possibility of moving the
rump of Irish Nationwide into Anglo after both lenders transfer loans to
the National Asset Management Agency and using the merged entity to
“cleanse” the other banks.”

The cost of bailing out Ireland’s banking system will push the
country’s budget deficit to 32% of its GDP this year, way above the EU’s
stipulated 3% limit. On top of that, Ireland’s banks remain heavily
dependent on the ECB for funding.

Merging the post-NAMA operation of Irish Nationwide into Anglo and
running down both over time could send reassuring signals to the markets
about their future, sources familiar with the proposals said, according
to the Irish Times.

It said the merged entity would then be used to take bad loans from
Bank of Ireland, Allied Irish Banks, Irish Life and Permanent and
building society EBS, cleansing them and allowing them to borrow in the
markets.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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