European Union regulators gave Ireland provisional approval on Wednesday to provide an emergency recapitalization worth up to 10.44 billion euros ($14 billion) to Anglo Irish Bank
The European Commission, the 27-nation EU's executive, also gave temporary approval for 2.7 billion euros in aid for Irish Nationwide Building Society
The Commission said it had approved both measures for a six-month period and invited interested third parties to comment on the measures.
The competition watchdog said it had also launched an in-depth investigation into the total aid received by Anglo Irish Bank and its accompanying restructuring plan.
There is no doubt that both Anglo Irish Bank and INBS need a significant recapitalization to meet their obligations, EU Competition Commissioner Joaquin Almunia said in a statement.
However, INBS needs to establish a viable restructuring plan and Anglo Irish Bank has to restructure profoundly in a way that effectively tackles the weaknesses of the past business model and ensures a sustainable future without continued state support.
Both lenders ran into trouble following risky lending to commercial real estate developers and investors. The firms were left with huge losses after the Irish property market collapsed.
The Commission said the capital injections would help the lenders preserve an adequate level of Core Tier 1 capital and cover impairments and losses on their assets.
It said the nationalized Anglo Irish would have to submit a revised restructuring plan taking into account the increased aid amount before the end of May, and Irish authorities have until June 22 to submit a restructuring plan for INBS.
Ireland acted to prop up its banking sector at the height of the financial crisis, nationalizing Anglo Irish Bank in the process and injecting capital into others. It created the National Assets management Agency (NAMA), or bad bank, to take bad assets off the hands of the banks.
The Commission, which monitors funds provided by governments to financial institutions to prevent any illegal state aid, said it was working with the Irish authorities on the restructuring of individual banks such as Allied Irish Bank