The Irish government will invest 5.5 billion euros (5.12 billion pounds) in the country's three main lenders, taking majority control of Anglo Irish Bank after a loan scandal there rocked an already beleaguered industry, Reuters reported.
Investors have been waiting for months for a bailout plan to match schemes in other countries, but pressure on the government intensified this week after Anglo Irish revealed its chairman had kept shareholders in the dark about 87 million euros (80 billion pounds) worth of loans he had received from the lender.
Its shares slumped to a record low of 19 euro cents and the financial regulator has launched a probe into directors' loans at all major Irish banks.
"This is a new beginning. We have to have proper lending, responsible lending, lending for the real needs of the economy," Finance Minister Brian Lenihan said on Sunday.
Dublin will invest 2 billion euros each in market leaders Bank of Ireland and Allied Irish Banks via preference shares giving 25 percent voting rights over what the government described as "key issues."
The government will be able to intervene in areas such as appointing directors, changes in capital and ownership changes. The banks have also signed up to a credit package designed to boost lending to companies and home buyers.
The injections, in the first quarter of next year, will boost core tier one capital ratios at the two banks to around 8 percent from around 6 percent currently, bringing them into line with international peers.
The package will be paid for from funds set aside during Ireland's "Celtic Tiger" economic boom and originally intended to meet the state's future pension obligations.
Analysts said the deal was attractive for the two main players because it was not as dilutive or as costly as the British 37 billion pound bailout plan unveiled in October.
"It's a substantially better package than the British one as far as the banks and their shareholders are concerned," said Kevin McConnell, head of equity research at Bloxham Stockbrokers.
The government will also underwrite plans by Bank of Ireland and Allied Irish Banks to raise up to 1 billion euros each in additional capital. No details of that capital raising were given.