A plan to carve out a substantial good bank from nationalised Anglo Irish Bank is facing opposition from the European Commission and Ireland's smaller governing party, the Sunday Business Post newspaper reported.
The mounting cost of rescuing Anglo Irish Bank this month pushed Ireland back into the centre of the euro zone debt crisis and its sovereign bond yields could rise further if the bank's rescue plan failed to clear political or regulatory hurdles.
Anglo Irish, taken over after exposure to a property market crash and several loan and deposit scandals, is moving half of its loan book to Ireland's state bad bank scheme.
It has proposed to divide its remaining assets into a good and bad bank of its own, with the good unit taking assets worth between 10 billion and 15 billion euros (8.2 billion and 12.3 billion pounds).
The Sunday Business Post, which did not name its sources, said Brussels was likely to push for a wind-down of the entire bank or at most accept a small good bank with a severely limited mandate for new lending.
Spokesmen for the European Commission and Anglo Irish Bank had no immediate comment on the report.
Dublin expects to spend up to 25 billion euros on Anglo Irish Bank and has said the figure would rise much higher if the lender had to be wound down. It has warned that closing the bank could also cause a flight of sovereign bond investors.
In a sign that political will in Dublin to support Anglo Irish could be waning, the chairman of the Green Party, the smaller member of the governing coalition, said his party was now considering calling for a wind down.
The party is leaning towards the position that the most cost-effective way of dealing with Anglo is to bring about a quicker wind-down of the bank, Chairman Dan Boyle told the Sunday Business Post.
The paper also quoted an unnamed source as saying: The feeling among senior party members is that we have to make a quick call on it, and a very compelling case would have to be made if it was to be kept going.
(Reporting by Andras Gergely; Editing by David Cowell)