Minister for Finance Michael Noonan has said the Government will seek to impose losses on senior bondholders in Anglo Irish Bank.
Mr Noonan was speaking in Washington, where he has been meeting US Treasury Secretary Timothy Geithner and officials from the International Monetary Fund.
He said around €3.5bn of senior unsecured, unguaranteed bonds issued by Anglo Irish Bank and Irish Nationwide Building Society should have losses imposed on them.
The minister said he had discussed the issue with the IMF, which supported the strategy.
He said these banks are no longer normal entities and are more like warehouses for bad debts.
In that context, he would be going to Ireland's European partners to propose significant cuts in the money to be paid to the bondholders.
Mr Noonan also revealed that he asked Mr Geithner to support Ireland's effort to cut the interest rate paid on the European parts of the bailout programme.
He said Mr Geithner agreed to support Ireland's effort and would speak with France in connection with this.
Opposition parties have given a cautious welcome to the announcement by the Minister.
Fianna Fáil spokesperson on public sector reform Michael McGrath said securing the approval of the European Central Bank for the initiative would be key.
Sinn Fein Finance spokesperson Pearse Doherty said the Minister's comments were 'a welcome first step'.
Mr Doherty said: 'However, it is not enough for Minister Noonan to seek permission from the EU and ECB to take this course of action.
'He should make it clear that while he would prefer their support, his intention is to impose losses on these un-guaranteed and unsecured bondholders in Anglo Irish Bank and Irish Nationwide.'
Independent TD Shane Ross said it remained to be seen if Europe would back the initiative.