The European Commission has approved the extension of the Government’s banking guarantee until the end of June 2011.
In a statement this morning, the EU's executive branch said it considered the extension to be in line with EU rules.
"The extended measures are well targeted, proportionate and limited in time and scope," it said. "The commission therefore concluded that the guarantees are an adequate means to remedy a serious disturbance in the Irish economy".
A spokeswoman for the Department of Finance last night said it had made an application to the commission for an extension of the guarantee.
The Eligible Liabilities Guarantee was introduced in December 2009 and superseded the original blanket guarantee scheme introduced in September 2008.
The guarantee, which is subject to review and approval by the European Commission every six months, was set to expire on December 31st this year, having been extended in September. The guarantee covers the vast majority of Irish retail and corporate deposits.
It is also designed to help Irish banks to access funding, as it covers new senior bonds with maturities of up to five years. Since September 29th this year, dated subordinated debt, a riskier form of bond, is not included in the guarantee.
Irish banks have struggled to raise money from the private market since the onset of the financial crisis and have been increasingly relying on the European Central Bank (ECB) for their liquidity needs.
The most recent figures from the Central Bank show that Irish lenders’ borrowings from the ECB stood at €119.1 billion in September, a 25 per cent increase on the previous month.
The 25 per cent jump was primarily due to the fact that a significant amount of debt matured before the end of September 2010, the deadline for the original guarantee scheme, and had to be replenished.
Most consumer deposits will continue to be covered under the guarantee scheme.
Retail deposits of up to €100,000 continue to be covered indefinitely by the Government’s deposit protection scheme.
On-demand deposits of more than €100,000 are guaranteed under the liabilities guarantee scheme until the scheme ends.
Term deposits of more than €100,000, which pay an interest rate for a set period of time, are covered up to a maximum of five years if they were agreed after the scheme was introduced.