IRISH SHARES significantly lagged the gains recorded by stock markets around the globe as concerns grew that the Government would have to follow other European countries and buy stakes in banks to create further safeguards for the Irish financial system.
Global stocks soared in their biggest one-day advance in at least 20 years as the British government, followed by Germany and France, took bold steps by unveiling a series of bank bailouts and guarantees in a bid to restore confidence and reopen frozen credit markets.
US stocks headed for their biggest percentage gain in a single day since the aftermath of the October 1987 crash, while the leading European stock index surged a record 10 per cent, as the bank bailout reassured investors.
However, the Iseq index climbed just 2.5 per cent, as shares in the State's two biggest banks fell sharply amid fears that the Government would have to intervene by buying equity stakes in the banks to further bolster the Irish financial system.
AIB fell 18.8 per cent, while Bank of Ireland shed 14 per cent.
The concerns emerged after euro zone countries pledged on Sunday to guarantee loans between banks until the end of next year and agreed to part-nationalise distressed financial institutions by injecting money in return for preference shares.
Taoiseach Brian Cowen said afterwards that the EU declaration to protect the banking system provided "a toolbox" of possible instruments that member states could use to deal with the crisis.
A spokesman for the Department of Finance said there were no plans to buy stakes in the banks or provide further support beyond the €485 billion bank guarantee. The British government agreed to inject £5 billion (€6.4 billion) into Royal Bank of Scotland (RBS), which owns Ulster Bank and First Active in Ireland, and guarantee another £15 billion (€19.3 billion) in a new issue of shares in the bank. Lloyds TSB and its proposed new partner, HBOS, which owns Bank of Scotland (Ireland), and Irish retail bank, Halifax, will take up to £17 billion (€21.8 billion) in emergency funding from the British government.
RBS chief executive Fred Goodwin and his counterpart at HBOS, Andy Hornby, have said they will resign following the part-nationalisation of the two banks. They will forgo their contractual payoffs when they leave.
The British government's investments in the banks come with conditions, including curbs on management bonuses and a pledge to ensure the availability and supply of loans to small businesses and home-owners.
Minister for Foreign Affairs Micheál Martin has suggested that Ireland's membership of the EU has helped it avoid the type of financial meltdown being experienced by Iceland.
Speaking at a meeting of EU foreign ministers in Luxembourg, Mr Martin asked the public to reflect on Europe's support in the crisis and a danger that Ireland could be marginalised within the EU due to its rejection of the Lisbon Treaty.
"We can see the difficulties that Iceland is having as a country that is on its own. This suggests that being at the heart of Europe is far more preferable than being on the margins of Europe and going the isolationist route," he said.