Shares of Irish banks nose-dived on Wednesday driven by fears of a bank run as speculation intensified over the government's potentially increased stake in the Bank of Ireland (NYSE: IRE) and the Allied Irish Banks (NYSE: AIB), even as Dublin was putting final touches to the austerity plan the country was ordered to follow as part of its 85 billion euro bailout announced early this week.

Though deposits of up to 100,000 euro are protected by the EU-backed government guarantee, markets were rankled by the possibility of the government takeover of the major banks which would leave the country without a major lender free of direct government control.

While shares in the Bank of Ireland were down 10 percent, Allied Irish Banks fell 19 percent and dropped 0.4 percent as markets speculated that the government would take a majority stake in the Bank of Ireland. Government shares in the Allied Irish Banks are expected to rise to 95 percent after a planned rights issue.

... the expected takeover of AIB and Bank of Ireland is fuelling fears in Ireland of a bank run, even though deposits of up to €100,000 are protected by the EU-backed government guarantee, UK's Guardian daily said in a live blog on the Irish crisis.

As the government stretched to limits propping up its stricken banks, credit rating agency Standard & Poor’s downgraded Ireland’s debt rating to negative.

“The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P said.

Ireland's state broadcaster RTE said late on Tuesday the EU and the IMF will provide the debt-stricken country with an 85 billion-euro loan facility to recapitalize the banks and meet public financing requirements.

It's unclear as yet how much of this money will be utilized for recapitalizing the fallen banks. A Capital Economics analyst has estimated that Dublin would be able to set apart between 20 billion and 30 billion euro to recapitalize the shattered banking sector.

Greece’s 110-billion euro fund, which it received earlier this year, was enough to cover its financing needs for two and a half years. If the Irish package is designed to keep Ireland out of the market for a similar period of time, around 60-billion will be needed for this purpose. On the face of it, then, this suggests that 20-billion to 30-billion may be left to recapitalise the shattered banking sector, wrote Ben May, European analyst.

According to the Guardian, some 48 billion of the bailout money could be used to fund the government deficit over the next three years, while between 15 billion and 20 billion euro will be pumped into Ireland's banks as fresh capital. The newspaper's live blog on the Irish crisis said up to 20 billion would also be provided as an extra contingency fund, which Ireland could tap as needed over the next few years.

The report, however said the Irish finance ministry termed the speculation over the break-up of funds as premature. Ireland will unveil the details of the austerity plan as well as a possible break-up of its planned spending out of the 85 billion euro bailout fund later today.

Guardian has said spending cuts will save a total of 10 billion euro while the remaining 5 billion euro will be mopped up through tax. It is expected the government could raise income tax widen the tax base. It says there is chance that those on the minimum wage could be brought into the tax regime.

A property tax of at least €300 year -- similar to the poll tax introduced by Margaret Thatcher in the 1980s -- is expected to be on the cards, the daily's live blog on the crisis said. It said the plan is also expected to include cuts of 800 million euro to social welfare cuts next year. 'There are also reports there will be a 12 percent cut in the dole but the corporate tax of 12.5 percent will stay.