The Irish government’s “bad bank” scheme was approved by European Union officials on Friday.

The so-called National Asset Management Agency will take over impaired loans from Ireland’s financial institutions and have the legal responsibility for pursuing property developers and other errant borrowers.

The scheme had required approval from Brussels under the EU’s state aid guidelines, and will allow five Irish financial institutions – Allied Irish Bank, Bank of Ireland, Irish Nationwide Building Society, EBS and Anglo Irish Bank – to offload loans linked to property assets whose value has become extremely uncertain in the wake of the financial crisis.

According to the European Commission, the Irish authorities expect Nama to purchase loans with a nominal value of about €80bn ($109bn) for about €54bn.

However, the Commission will continue to monitor the working of the scheme, and the price at which the assets are transferred, in particular. “These individual reviews will include a clawback mechanism in the case of excess payments,” it said.

Separate state aid-related decisions on the restructuring plans of individual Irish banks – such as Allied Irish Bank and Bank of Ireland – will be taken later.

The Irish bank restructurings are some of last major schemes to be considered by Brussels under the state aid rules in the wake of the 2008 crisis in financial markets. By the end of 2009, around 80 separate national measures had been notified and approved.

The green light for Nama was immediately welcomed by Brian Lenihan, Ireland’s finance minister, who described it as “an important milestone”.

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