Ireland may create a second “bad bank” by merging the nationalized lenders, Anglo Irish Bank (ANGIB.UL) and building society Irish Nationwide (IRNBS.UL), and then using this entity to absorb bad loans from other banks.

The Irish Times reported on Thursday that officials were exploring the possibility of moving the remains of Irish Nationwide into Anglo. Following this the two could be wound down over time giving a reassuring signal to the markets about the future. The newspaper said that this inside information had come from sources close to the proposal.

The new entity would firstly be used to absorb the loans of Bank of Ireland (BKIR.I), Allied Irish Banks (ALBK.I), Irish Life & Permanent (IPM.I) and building society EBS (EBSBS.UL).

Allocating funding to complete this merger is seen as the large obstacle although European Central Bank funding over a longer time frame is being considered.