The European Commission has approved the Government's €400 billion guarantee that covers six Irish-owned banks and five foreign-owned financial institutions.
The announcement came as Taoiseach Brian Cowen returned from Paris where EU leaders had agreed on a big funding programme for banks and businesses.
Under the programme, governments can use taxpayers funds to put new money into the banks, either by purchasing shares or by buying up their debts. They have also agreed that the European Central Bank can lend money directly to large businesses.
Euro zone governments promised to tackle the crisis together, buying into banks by taking preference shares and guaranteeing inter-bank lending to help increase liquidity.
European officials have said the package will cost several hundred billion dollars on top of the huge sums already spent rescuing banks and propping up the money markets.
The European talks came after leaders from the Group of Seven richest economies pledged to support key financial institutions, take measures to get credit flowing, assist banks in raising capital and reassure savers.
In Washington, the EU measures won swift praise from International Monetary Fund chief Dominique Strauss-Kahn, who said the IMF had been calling for months for coordinated international action to the brewing crisis. 'Nearly all advanced countries are now covered and the euro zone provisions may be extended eventually to all of Europe,' he said.
'The euro zone plan is also comprehensive. Altogether we are going in a good direction,' he added.
