The Irish government is investing €3.5bn in both Allied Irish Banks and Bank of Ireland to help them ride out the collapsing Irish property market, which is set to result in large-scale loan losses as developers go bust.

The €7bn ($9bn, £6.3bn) recapitalisation is by way of preference shares, paying the government an 8 per cent coupon, less than the 12 per cent charged by the UK government bank recapitalisation.