Earlier today, Ireland's Finance Minister Brian Lenihan announced an emergency "supplementary budget" to address Ireland's growing budget deficit, which had grown to €3.7 billion during the first three months of 2009 and was projected to grow to as much as €24 billion by year end, all while GDP is projected to fall by 8% this year and unemployment projected to hit 12.6%, the highest level in 13 years. The proposed supplementary budget includes a combination of substantial tax increases and more modest spending cuts that would reduce the projected budget deficit by €3.25 billion in 2009 and an additional €2.7 billion in 2010.

Strikingly, the government's proposal also includes provision for the creation of a so-called "bad bank" to purchase real estate loans and other problem assets from Irish banks. Under the government's plan, which will require enabling legislation, a new "National Asset Management Agency" would be created to purchase assets from banks in exchange for government bonds, for "the purpose of ensuring that banks have a clean bill of health, their balance sheets are strengthened and uncertainty over bad debts is reduced" and to "ensure a sustained flow of credit on a commercial basis to individuals, households and businesses in the real economy." The Minister stated that the "potential maximum book value of loans that will be transferred to the Agency is estimated to be in the region of €80 to €90 billion, although the amount paid by the Agency will be significantly less than this to reflect the loss in value of the properties."

In addition, the government proposes to improve bank supervision and regulation: "The role of the Central Bank of Ireland will be reformed to place it at the centre of financial supervision and financial stability oversight, providing for full integration and co-ordination of the prudential supervision and stability of individual financial institutions with that of the financial system as a whole. The Central Bank of Ireland will in the future be headed by a Commission, chaired by the Governor."