The European Commission has approved the Government's request to extend the bank guarantee scheme for corporate deposits until 31 December.

A statement issued today said that the guarantee scheme was an adequate means to remedy a 'serious disturbance' in the Irish economy.

However, banks availing of the guarantee would have to pay higher premiums to issue debt under it.

The European Commission said it was satisfied there would be sufficient safeguards to minimise potential distortions of competition.

The Government sought permission to provide an extension of the bank guarantee scheme for short-term corporate liabilities earlier this month.

It was feared that once the guarantee ran out at the end of September there could be a flight of capital by depositors.