The Government may seek to extend its banking guarantee beyond the end of the year to ease lenders' access to funding, two people with knowledge of the situation said.
The Eligible Liabilities Guarantee plan, covering deposits and new senior bonds with maturities of as much as five years, is set to expire on December 31st.
The guarantee, which does not cover subordinated bonds, is subject to a review every six months and the European Commission must approve an extension.
The State first introduced a bank guarantee in September 2008 as the financial system came close to collapse. Banks are still struggling to raise funds and Irish lenders' borrowings from the European Central Bank rose 25 per cent last month to €119.1 billion, the Central Bank said earlier this month. The figures include international and domestic institutions.
"The Government will continue to support the banks through a guarantee scheme as appropriate," the Department of Finance said in a statement today.
The Irish guarantee carries an AA- rating from Standard and Poor's and financial notes with a similar grade have an average spread of 184 basis points, according to Bank of America data.
Bank of Ireland fell 0.8 per cent to 61 cents as of 2.45pm in Dublin trading. AIB fell 1.8 per cent to 38.8 cents and Irish Life fell 3 per cent to €1.60.
No Government-guaranteed lender has sold a benchmark bond since April, when Irish Life and Permanent found buyers for €1.25 billion of bonds, as investors worry about the cost to the state of bailing out the country's banks.
The Government has already spent €33 billion bailing out lenders, including Anglo Irish Bank, AIB and Irish Nationwide Building Society, pushing the country's fiscal deficit to 32 per cent of gross domestic product this year. The final tally may be as much as €50 billion.
Bloomberg