Bank of Ireland, Irish Life & Permanent and EBS have announced plans to make subordinated bondholders share the burden of recapitalising the banks.

Finance Minister Michael Noonan said the moves were in line with Government policy to make junior debt holders contribute to the costs of the banking crisis. He warned that the Government would take further steps if the offers being made by the banks did not deliver the expected capital gains.

Bank of Ireland said it would shortly launch a plan which would cover about €2.6 billion of its subordinated, or junior, debt.

The bank said its current expectation was that it would offer holders of the bonds involved 10% to 20% of the original value.

The bank needs to raise €5.2 billion to meet targets set by the Central Bank, including €1 billion of contingent capital.

The move against junior debt holders could raise around €2 billion. Applying such significant losses to bondholders reduces the amount of money that the State will need to put into the bank.

The bank also said it could offer an equity alternative to bondholders, allowing them to take a stake in the bank in return for debt.

Bank of Ireland said its plans would include proposals to amend the terms of the debt, so that if its offer were not accepted, the bank could acquire the debt for significantly less than the 10% or 20% being offered.

Bank of Ireland shares fell almost 28% to close at 13 cent in Dublin. The fall was blamed on a lack of certainty about the plans for a debt for equity swap.

Subordinated bonds usually pay a higher rate of interest as they run more of a risk of not being re-paid.

IL&P said it intended to offer junior debt holders with around €840m of debt 20% of the original value, which would raise around €670m. It also plans to take steps to acquire any bonds not taken up under the offer. IL&P needs to raise around €4 billion to meet Central Bank targets.

EBS said it planned to buy back around €260m of subordinated bonds for 10% to 20% of their original value.

Finance Minister Michael Noonan said the level of burden-sharing announced today was the minimum acceptable to the Government. He said subordinated bondholders' investments in these financial institutions would have been wiped out without the overwhelming financial support from the State.

Mr Noonan also said he continued to believe that two legal challenges to a similar exercise proposed by AIB were 'entirely unfounded'.