Tánaiste Joan Burton has said the Government will use every legal means available to ensure junior bondholders in IBRC are not paid.
Michael Noonan has said the situation was a few years off and might not arise at all.
The Tánaiste made her views clear in the light of an email from a senior official in the Department of Finance suggesting burning the bondholders might be legally difficult.
This morning's Irish Independent discloses correspondence between outgoing Central Bank chief Patrick Honohan and Ann Nolan in the Department of Finance.
Professor Honohan insists that the moral case for ensuring the taxpayer and not the junior bondholders get any surplus cash from IBRC is, as he put it, "almost unassailable".
But in her response, Ms Nolan said such an approach would not be legally straightforward and the Attorney General's advice had been sought.
This morning a spokesperson for Ms Burton said the Tánaiste was resolute in her view that the junior bondholders, who are owed €270m, should not be paid.
On his way into Cabinet this morning, Minister for Finance Michael Noonan said that the issue would not arise for a number of years when the liquidation process nears its end.
He insisted that although the process was going well there might not be enough money to pay the bondholders in any event.
However, it is known that some of the investors feel they have a strong legal case and expect to get their money back.
They have already won one related case in the High Court in London.
Analysis: Political Correspondent David Davin-Power
Central Bank Governor Patrick Honohan’s correspondence with Ann Nolan does reignite the whole issue of burning bondholders.
Saying burn the boldholders is politically risk free and it gave Labour’s Joan Burton the opportunity to beat her chest about this politically and that’s what she’s done.
There is not much difference between Fine Gael and Labour’s approach to bondholders. Taoiseach Enda Kenny said six months ago he didn’t see the bondholders getting paid.
However, the world economy is lifting and the liquidation of IBRC is going better than the Government had expected.
When politicians of all hues were saying that bondholders would not get paid previously they were saying it confident they would not have to put their money where their mouth is.
However, with an improving economy they may have to make that call.
But that’s a lot of ifs, buts and maybes.
