The Irish stock market has reacted positively to the decision by the Government to guarantee all deposits and borrowings for the six Irish-owned banks for the next two years. The ISEQ eventually closed up almost 8% at 3,551.

The banks covered are: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life & Permanent, which owns permanent tsb, Irish Nationwide Building Society and the EBS (Educational Building Society).

Minister for Finance Brian Lenihan speaks to David Murphy about the Govt's decision to guarantee deposits.

How are your savings affected? See the protection in place for Irish banks.

Today's Dáil schedule was rearranged to allow for the introduction of emergency legislation covering the guarantee.

Specific subsidiaries that may be approved by Government following consultation with the Central Bank and the Financial Regulator are also covered under the guarantee.

The guarantee also covers all money borrowed by Irish banks from other financial institutions and the statement from the Department of Finance says all deposits, bonds and debt will be covered by the State.

EC to study details

The European Commission has said it would study details of the decision to see whether the move complied with EU competition rules.

A commission spokesperson said that the EC had been in touch with the Irish authorities and if there was any State aid involved it would look at it as a matter of urgency.

The two-year guarantee is being provided on commercial terms to the institutions.

The decision in effect means that the Government has decided that the Irish taxpayer will now provide a guarantee for €400bn of liabilities.

It does not apply to the liabilities of Ulster Bank, National Irish Bank, ACCBank or Rabobank, which are all supported by large overseas parent banks.

The Government says that the interest of the taxpayers will be protected by charging for the guarantee at commercial rates. However it is not clear what those rates are.

The guarantee provided will also be subject to terms and conditions, although there is no announcement yet about what those terms and conditions will be.

In a statement, the Government said that all financial institutions in Ireland will be subject to normal ongoing regulatory requirements.

It added that the guarantee is first and foremost in the interest of the stability of the Irish economy and the long-term interest of the taxpayer and that a secure and stable financial sector is essential for the Irish economy and in the best interests of the Irish people.

The safety of deposits in credit institutions authorised by the Financial Regulator, aside from those covered by the Government plan, are guaranteed up to €100,000.

National Irish Bank, owned by Denmark's Danske Bank, has applied to the Department of Finance to be included in the scheme. It has received indications that it will be accepted.

Rabobank, which operates online, does not come under the €100,000 scheme as it authorised by the Dutch Central Bank. It is guaranteed for up to €38,000 by the Dutch deposit guarantee scheme.

Dexia bailout

Meanwhile, Dexia has become the latest European bank to need a state bailout with Belgium, France and Luxembourg pumping €6.4bn into the group.

The capital injection was agreed during crunch talks through the night after shares in the Belgian-French banking group plummeted by nearly 30% yesterday.

Under its terms, various Belgian authorities and some big Belgian shareholders will contribute €3bn to the rescue by subscribing to a capital increase.

The French government and the French state financial institution Caisse des Depots will add another €3bn to the pot while Luxembourg will invest €376m through a convertible loan.

Dexia was founded in 1996 as a merger of France's Credit Local and Belgium's Credit Communal. While it specialises in local government finance, it also has €5.5m individual clients in Belgium, Luxembourg, Slovakia and Turkey.