REDUCING THE number of domestic banks by creating “two new strong universal pillar banks’’ was announced by Minister for Finance Michael Noonan.

The first “pillar” would involve splitting Bank of Ireland into separately-managed non-core and core divisions, starting to shed €30 billion of assets by 2013.

“It will become a significantly more domestically-focused bank and retain its businesses in Northern Ireland, its post office deposit venture in the United Kingdom and limited capital market businesses.’’

Mr Noonan said the second “pillar’’ would combine the operations of AIB and EBS from the strengths of both institutions.

“Again, this will be a largely domestically-focused bank, retaining its Northern Ireland operations and certain deposit-funded operations in the UK.”

He said that during the transition customers should continue to do business with either bank as before, and over time the fuller services of AIB would become available to EBS customers, whose depositors would retain the State guarantee.

He said to satisfy the Central Bank’s capital requirements, Irish Life & Permanent must raise very substantial additional equity capital.

This would require a significant restructuring of its business and shareholding, involving in all likelihood a majority stake held by the Government.

The Minister said that September 30th, 2008, the day of the “infamous’’ guarantee to the banks, would go down in history “as the blackest day in Ireland since the Civil War broke out”.

The banks were too big for the economy.

“The JCB and the swinging crane had become the logos of the banks, and Irish bankers were as likely to be funding apartment blocks on the Black Sea or dabbling in property schemes in Singapore as they were to be investing in the Irish economy,” said Mr Noonan.

He said the previous government had “ducked and dived and procrastinated” as it lurched from one crisis to another.

It was acknowledged by all, said Mr Noonan, that a large part of the €46.3 billion already invested by the State in the banks would not be recovered, although the State had not borne the full burden of the collapse.

About €60 billion of private equity value in Irish banks had also been destroyed since early 2007, much of it held by domestic citizens.

Subordinated bondholders had also already contributed around €10 billion to the cost of the bailout.

A further €24 billion, including €3 billion of contingency funds, was now required by the banks for capital purposes.

“This is a significant sum, although it is within the funding envelope available for this purpose from the EU-IMF programme of support.”

That was not to say, said Mr Noonan, that the burden should fall first on the taxpayer without any mitigation.

Actions to significantly reduce the cost to the taxpayer would include providing some element of capital up to €3 billion on a contingent basis: if not required the capital must be returned to the State.

He said neither Anglo Irish Bank nor Irish Nationwide was subject to stress tests, so there was no immediate need for additional capital for either institution.

A further assessment of their capital requirements would be available in May.

Mr Noonan said he welcomed recent initiatives by the Central Bank, including the introduction of a new code of corporate governance and the recent consultation paper on fitness and probity standards by Central Bank regulator Matthew Elderfield.

“Mr Elderfield has made it clear that the track record of those holding senior positions in financial services will be taken into account in assessing their suitability for taking up or indeed retaining a senior role in a financial institution,” the Minister added.

He anticipated that there would be further board changes in the banks, focused particularly on directors whose tenure predated the end of September 2008.