The Finance Minister Brian Lenihan has said the final cost of bailing out Anglo Irish Bank will not be known until next month.
Mr Lenihan today announced that the institution will be split into a Funding Bank and an Asset Recovery Bank as part of the process of winding down Anglo.
He said there is no timeline for how long it will take for the orderly wind down to be completed, but said doing so immediately "was not an option".
Anglo-Irish Bank is to be split in two with the nationalised former loan machine turned into a savings holder.
A second wing will also be set up taking loans less than five million euro from the toxic property lender with management ordered to sell it off or run it down - whichever saves the taxpayer more money.
Mr Lenihan gave a stark warning of how a quick shutdown would hit the country.
“The practical reality is that the bank owes €72bn - the bulk of it to depositors. If we let this go, we let Ireland go,” the minister said.
“We cannot contemplate that.”
The decision on Anglo followed months of discussions and proposals with European Commission chiefs and options put forward by Anglo management. The last two days, Mr Lenihan spent discussing the future of Anglo with Competition Commissioner Joaquin Almunia and European counterparts.
Mr Almunia said: “I view this new option positively as it would deal better with the distortions of competition.”
But he warned a number of important aspects around the proposal need to be clarified before the Commission will sign off on it.
The bank last week announced losses of €8.2bn and is forecast to need a bail-out of at least €25bn.
Under the Government’s plan, to be authorised by the EC, the two new banks will be rebranded – one as a so-called Funding Bank holding customer deposits of €23.2bn and the second an Assets Recovery Bank tasked with managing €38.4bn of loans.
Money lending will be outlawed, the Department of Finance said.
Mr Lenihan said the move would provide certainty about the future of Anglo.
“Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system,” he added.
Fine Gael leader Enda Kenny claimed the Government’s banking policy was a disaster.
Michael Noonan, the party’s finance spokesman, said splitting the debt-ridden bank was a fudge.
“The proposals of the Irish authorities has been turned down in Brussels,” he said.
“They had two clear choices which they could go for – this good-bank, bad-bank option which is what their proposal was or they could go for a wind down over a period of time, orderly wind down.
“Extraordinarily they have come up with a third choice... it’s a bit of a fudge.”
Labour’s Joan Burton said the plan was unclear, ambiguous and raised more questions than it answered.
“It fails to draw a line under Anglo’s mounting losses and does not do enough to dispel the uncertainty hanging over Ireland’s public finances,” she said.
“The minister has ’kicked the can’ until October.
“This calculated vagueness falls well short of what is required at a time when uncertainty over the scale and cost of Ireland’s banking crisis is undermining the financial security of the state itself.”
Sinn Féin’s Arthur Morgan said it was the worst possible option and made without consulting the Dail.
“We have seen Brian Lenihan on a crusade to Europe to secure the backing of the European Commission for the Government’s banking strategy but he has been too cowardly to consult with members of the Dail and the people of this state,” Mr Morgan said.
Anglo management had favoured a good-bank bad-bank split with 80% of the toxic lender shut down and a new viable bank created from the good loans.
Mr Lenihan warned that idea would not have provided the most viable and sustainable solution to ensure the stability of Irish banking.
The Government said the new savings bank would be completely separate from the loan assets and people who left money in the bank would be totally insulated from the performance of the second wing of the bank.
“The Government’s primary objective in dealing with Anglo-Irish Bank has been to minimise the cost of this distressed bank to the Irish taxpayer,” the Department of Finance said.
“It will be a stand-alone, regulated bank, completely separated from Anglo’s loan assets and it will be owned directly by the minister for finance.”
Anglo, which said it would work to implement the plan, has not expanded its loan book since 2009 and the Government insisted it would stay that way.
A full report on the plan was expected to be handed to the European Commission chiefs in Brussels next month for them to authorise.