The Irish government’s haste to guarantee the deposits and debts of the country’s banks was balanced by its slowness in recapitalising them. It caused persistent uncertainty about the true extent of the Irish banks’ woes. Dublin’s early guarantee reassured depositors, but also reminded investors of the fragility of the highly leveraged HBOS-like funding model banks used to finance domestic and UK property booms. The more guidance Ireland’s bankers gave on their likely loan losses, the less analysts trusted what they heard. Take Anglo Irish Bank: after it issued guidance for its loan losses next year of between 80 and 120 basis points of risk-weighted assets, Collins Stewart, a broker, promptly pencilled in 200bp.

Dublin’s plan to inject €10bn of capital into domestic banks is welcome, but late – and remarkably vague. Apart from the worrying suggestion that it would consider helping itself to Ireland’s €18bn state pension scheme – recognition that funding alternatives are not cheap as sovereign bond spreads widen – the government says it might buy preference or ordinary shares or underwrite a share issue. So a UK-style solution is on the cards. Private equity bidders are welcome, too. Acknowledging the magnitude of the problem is a worthy start. But the UK bank bail-out has raised the capital bar. JPMorgan reckons €10bn might not be enough. Assuming a minimum core tier one capital requirement for Allied Irish Banks and Bank of Ireland of 7 per cent by 2010, and 8 per cent for Anglo Irish Bank, it reckons the three biggest banks alone could suck in €8.3bn. Some say a total capital raising closer to €15bn might be better.