A research note from JP Morgan has looked at three options for supporting AIB and Bank of Ireland, and has concluded that a so-called 'good bank/bad bank' structure is the best option available for taxpayers and shareholders.
This option would involve the Government's buying some of the riskiest loans from the banks, in return for Government bonds, and putting them into a 'bad bank', which the Government would run.
The bank's London-based analysts say that, in this case, shareholders would have to inject new capital but would have a 'clean' bank, which would recover more quickly.
For the Government, the analysts say, this option would speed up a recovery in lending activity, while the Government could also argue that no additional taxpayers' money would be needed in the short-term. The analysts expect €5 billion for each bank would be needed under a 'bad bank' plan.
JP Morgan's analysts also looked at the Government's proposed recapitalisation programme and the possibility of a loan protection scheme similar to the UK's - where the Government would guarantee losses above a certain level from bad debts, in return for fees from the banks.
JP Morgan's report says none of the options is attractive, but stresses that both banks are viable in the medium-term, due to their dominant market shares in Ireland.
