Ireland's National Asset Management Agency (NAMA), the government's so-called 'bad bank', said it would buy loans with a total nominal value of 81 billion euros from what were the country's three largest banks and two of its building societies.
The average discount on a first tranche of loans, to be transferred over the coming days, is 47% - much more than the 30% average estimated by the government last year for all loans acquired over the course of 2010.
The deeper discount reflects the magnitude of the property market collapse, particularly in the UK and Ireland, and Finance Minister Brian Lenihan acknowledged what the banks faced was huge.
"At every hand's turn our worst fears have been surpassed," he told the Irish parliament.
"The banks played fast and loose with the economic interests of this country," he added, referring to "appalling lending decisions that will cost the taxpayer dearly for years to come".
The fully nationalised Anglo-Irish Bank needs by far the most - 8.3 billion euros now and possibly a further 10 billion euros in future.
Of the listed banks, Allied Irish Banks Plc, Ireland's second largest bank by market value, needs to raise 7.4 billion euros of fresh capital, but it was given some time to sell assets before a decision on whether it needs another state bailout is made.
Bank of Ireland, Ireland's largest bank by market capitalisation, needs to find 2.66 billion euros, but Lenihan said it was expected to raise much of that capital privately, leaving the state a minority shareholder.
Already last year, the Irish state was forced to nationalise Anglo-Irish Bank and Lenihan said on Tuesday the state was also taking full ownership of EBS Building Society and Irish Nationwide Building Society, as expected.
Dire as the banks' situation was, officials have said the cost to the state was manageable after its implementation of austerity measures. In the December budget, the government announced tough spending cuts of some four billion euros to address one of the deepest recessions in Europe.
"The sovereign is in a position to conduct this exercise now on the basis of the public finance changes that we brought about over the past couple of years," Prime Minister Brian Cowen said.
Lenihan described restoring credibility in the banks as "the ultimate phase of the resolution of our crisis".
Big gamble?
Many in the investment community have praised NAMA - an acronym that has entered the vernacular in Ireland - although the Irish opposition has said it is one of the biggest gambles in the nation's history.
Analysts said Tuesday's news had positive elements, notably Allied Irish was being given some time to sell off assets and the news on Bank of Ireland was broadly in line with expectations.
"The positives are that we've seen AIB being given time to executive some asset sales. There hasn't been an automatic trigger of the government taking a significant stake in the bank," said Kevin McConnell, head of research at Bloxham Stockbrokers in Dublin.
Ireland's growing state ownership of its banks runs counter to the trend in many other countries that have started to reduce bank shareholdings.
(EurActiv with Reuters.)
