Ireland’s Department of Finance released a statement today announcing that it will split Anglo Irish Bank into a “Funding Bank” that will continue to operate as a regulated bank and a separate “Asset Recovery Bank” that will be wholly or partly sold or its assets run off over time. This amounts to a rejection of the restructuring plan submitted by the board of Anglo Irish Bank, which the government concluded “in its current form does not now provide the most viable and sustainable solution to ensure the continued stability of the Irish banking system.”

The Funding Bank will be a Government-backed or guaranteed specialist deposit bank and will retain the bank’s existing deposit book. It will be a stand-alone, regulated bank, owned directly by the government and completely separated from Anglo Irish Bank’s loan assets. The Funding Bank will not engage in any lending, but will maintain deposits for Anglo Irish Bank’s current depositors and any new customers who wish to deposit funds with the bank. Depositors with the Funding Bank will be completely insulated from the future performance of the current Anglo Irish Bank loan book. The guaranteed position of the depositors will be unchanged by the split and no action will be required of them following the announcement.

The Asset Recovery Bank will also be a licensed, regulated bank. Its focus, however, will be on the work-out of bank assets not being transferred to the National Asset Management Agency (NAMA) “in a manner which maximises the return to the taxpayer.”

"Today's decision by the government will provide certainty about the future of Anglo Irish Bank.” said Minister for Finance, Brian Lenihan. “Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system.”

Implementation of the new plan will require approval by the European Commission under EU state-aid rules.