Irish Finance Minister Brian Lenihan said Wednesday that the nationalized lender Anglo Irish Bank Corp. will be split into a "funding bank" that will continue to operate and an "asset recovery bank" that will be wholly or partly sold.

"It is intended that in due course the recovery bank will be sold in whole or in part or that its assets will be run off over a period of time," the Finance Ministry said.

The funding bank will be a government-backed/guaranteed specialist deposit bank that will maintain the bank's deposit book. It will be a stand-alone, regulated bank, completely separate from Anglo Irish's loan assets, and it will be owned directly by the finance minister.

The funding bank will not lend but will provide a "secure home" for its depositors and new customers, the Finance Ministry added.

European Competition Commissioner Joaquin Almunia said he will review the plans. "I view this new option positively, as it would deal better with the distortions of competition," he said. "However, a number of important aspects still need to be clarified, and a new notification received, before the commission is in a position to finalize its assessment and to take a decision."

For its part, the board and management of Anglo Irish Bank said they welcomed the Irish government's decision to split the bank. This brought "certainty … to a very difficult situation," they said, and they will work closely with officials to deliver a detailed plan for the bank's future.

The government's announcement aimed to ease fears about the toll Anglo Irish's bailout — currently estimated at about $31.9 billion — will take on the economy and help clarify Ireland's prolonged banking crisis. The government said the central bank will announce the bank's restructuring costs in October.

"Today's decision by the government will provide certainty about the future of Anglo Irish Bank," Lenihan said in a press release. "Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system."

The decision differs from the proposals made by Anglo Irish's board, preferring to create an asset management unit to oversee "lower-quality" assets after loan transfers are made to the government's National Asset Management Agency and a "normal" bank to manage the loan book, retain the bank's deposit funding and seek new lending opportunities.

But the government said, "Anglo Irish Bank has not expanded its loan book since it was nationalized in early 2009, and this will remain the case." A detailed plan will be submitted to the European Commission for approval.

Ireland remains a focus of European debt fears amid worries about the Anglo Irish bailout's cost. So far, roughly $42.1 billion, or about 20% of gross domestic product, has been spent to recapitalize Irish banks.

Lenihan said Tuesday that the state will extend to yearend its guarantees on short-term bank liabilities now set to expire Sept. 29. This includes corporate and interbank deposits, as well as debt securities.

The minister reiterated that this announcement does not affect retail deposits of up to $127,475 because they fall under the ordinary deposit guarantee scheme, which is not time-limited.

Economists say the extension will bring some relief. The market feared that corporate depositors would withdraw funds from Irish banks once the guarantee expired at the end of September.

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