Bank shares surged today as the market reacted to news that the High Court approved the transfer of €12 billion in deposits out of Anglo Irish Bank and Irish Nationwide Building Society.

The transfer order to move €8.6 billion in deposits from Anglo to AIB and €3.6 billion from Irish Nationwide to Irish Life and Permanent was sought by Minister for Finance Brian Lenihan under the Credit Institutions (Stabilisation) Act.

By the end of the day's session, Irish Life and Permanent had gained 9.6 per cent to trade at 96.5 cent on the Iseq, while AIB was up 4.4 per cent to 26 cent, after adding 10 per cent earlier today.

Bank of Ireland was trading at 36.9 cent, a rise of 7.3 per cent.

As part of the deal, AIB will also get €12.2 billion in senior Nama bonds from Anglo.

In a statement today, Anglo said it would pay €1.6 billion in excess of the book value of the deposits in Ireland and the UK, and will also sell the shares of its Isle of Man subsidiary to AIB at net asset value.

It said the expected pre-tax net effect for the bank will be a loss of about €200 million.

"The boost to the banks' liquid asset portfolios is timely, especially as tightening of ECB collateral rules and negative ratings action have affected collateral eligibility," Davy analyst Stephen Lyons wrote in a note.

However, he said there were still questions over Anglo and Irish Nationwide

"The transfer of deposits and ECB eligible assets highlights the outstanding issue of how institutions in wind-down will fund themselves," he wrote.

The new deposits will improve the finances of both AIB and Irish Life and Permanent. Irish institutions have been hit by a loss of deposits in recent months as the country's debt crisis rattled investors and international markets.

AIB’s loan to deposit ratio will be lowered to about 150 per cent (€1.50 on loan for every €1 on deposit) from 159 per cent last September.

Irish Life and Permanent will see its LTD ratio lower from 249 per cent at the end of last year to about 200 per cent. The bank will also receive State-backed Nama bonds for the first time as part of the deal with Irish Nationwide.

The transfer of deposits, which begins the wind-down of the two lenders, will affect about 120,000 customers at Anglo and about 160,000 at Irish Nationwide. However no action needs to be taken by depositors. The same interest rates and duration on deposits will still apply and depositors can access their money as normal. The deposits continue to be protected by Government guarantees.