Nationalised Anglo-Irish Bank is to be split up, the Irish Government has confirmed.
The state-owned bank - €8.2bn (£6.7bn) in the red and in need of a potential €25bn (£20bn) bail-out - will be divided in two with one wing holding deposits and the other dedicated to managing good loans which will be run down over time.
The new bank divisions will not lend money.
Finance minister Brian Lenihan, who spent the last two days in tough talks with European Commission chiefs and European counterparts, said the move should help restore confidence in the financial system.
"Today's decision by the Government will provide certainty about the future of Anglo-Irish Bank," he said.
"Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system."
Anglo management had favoured a good-bank bad-bank split with 80% of the toxic lender shut down and a new viable bank created from the good loans.
Mr Lenihan said Anglo's proposal had been put forward in good faith but warned it would not have provided the most viable and sustainable solution to ensure the stability of Irish banking.
Taoiseach Brian Cowen had warned a quick wind-up of the bank would leave the taxpayer with a bill for €70bn (£57bn).
© Press Association