Ireland Puts Up €400bn to Protect Six Big Lenders

Ireland announced yesterday that the state would safeguard all deposits, bonds and debts in six banks and building societies for two years following a huge share sell-off on Monday.

The €400bn package covers Allied Irish, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society, and the Educational Building Society. British depositors with accounts in their UK branches will be covered, as will savers at the UK's Post Office whose deposits are run by Bank of Ireland.

The department of finance in Dublin said it was still considering whether the scheme could be extended to subsidiaries of Irish banks in the UK; it was awaiting a ruling by Ireland's financial regulator.

Opposition leaders warned that if the scheme failed it had the potential to bankrupt the republic. In Britain, ministers were also critical, suggesting it could breach European Union state aid rules.

Brussels made it clear yesterday that it was refusing to suspend such rules to meet the crisis Britain, Belgium, France, Germany and other states have all notified Brussels of their bail-outs, with European Commission officials promising urgent and swift decisions.

Another European bank was bailed out yesterday, the third within 48 hours, as €6.4bn was injected into Dexia. An emergency overnight meeting saw the Belgian government agree to invest €3bn, an amount matched by the French state which is to become a 25% shareholder. Luxembourg is supplying the remainder.

Dexia is the world's biggest lender to local government, but also has more than 5m retail customers. Its shares fell 30% on Monday. Other banks exposed to the US mortgage market also suffered deeply.

Dexia has undertaken to improve the way it is governed. Paris said it had acted to guarantee financing for local governments for which Dexia Credit Local was the main lender, as well as to stabilize the French and European financial systems; it insisted its main banks were solid.