THE Government is embroiled in in-fighting and a turf war with the Central Bank over the slow pace of action on lending and mortgage arrears.
Three extra senior ministers are now being drafted into a new cabinet committee to put fresh pressure on AIB and Bank of Ireland.
Within Government, there is a view that the two pillar banks "are playing a game of chicken" in not wanting to be the first to make a major move on mortgage write-offs.
"They're just not facing reality," a source said.
The Coalition also wants the Financial Regulator to "do more" to force the banks to tackle the issue of mortgage arrears.
But the Central Bank is arguing it's not that easy and senior sources say politically unpalatable decisions have to be taken and that the "repossession of houses is one of the main stumbling blocks".
Problems also surround the danger of setting specific targets for debt forgiveness, and homeowners prioritising unsecured credit union debt over secured mortgage debt.
And a landmark court ruling has brought repossessions to a virtual standstill.
Government sources also say the Taoiseach's officials have become impatient with hearing from Finance Minister Michael Noonan's officials that there is action being taken – which is then contradicted by the evidence on the ground.
The trio will bring greater emphasis on the issues of mortgage arrears, small business lending and dealing with debt.
The additional three ministers are intended to apply more pressure on the banks and bring greater analysis to the table.
The new sub-committee is expected to be finalised in the next fortnight.
"Taoiseach's (department) are tired at Finance's attempts to crack the nut and want to bring other parts of Government to bear," a source said.
The Government also feels the passing of the Personal Insolvency Bill is the final step in tackling the mortgage issue – and the Regulator needs to take more action.
"In our view, the Regulator is not moving as strongly as it could be. The money is there. The legislation is there. Now is the time to get on with it," a government source said.
But Central Bank sources caution about the past lessons from political interference in the regulation of financial institutions, and say there is no "silver bullet" to change the banks.
There are also warnings about the danger of the Government's demands for overall specific targets being set for debt forgiveness and mortgage arrears reductions.
Any target has the potential to result in the first applicants being granted relief, in order to reach the figure.
The Central Bank argues it is working with the banks and making progress, but just not producing the headline figures the Government wants to spin.
"A lot of the unpalatable decisions have to be made. Are the politicians going to stand up in the Dail and call for repossessions?" said a senior Central Bank source.
"The repossession of houses is one of the main stumbling blocks. The logical conclusions for people who are not paying their mortgage is to take the house off them.
"But we still haven't legislated for the Dunne Judgment."
This is in reference to a judgment delivered by Ms Justice Elizabeth Dunne in July 2011, which uncovered a flaw in the legislation governing property repossessions.
In the action, Judge Dunne found that a failure to change aspects of old laws before the Conveyancing Law Reform Act 2009 was introduced meant that lenders could only repossess registered homes where borrowers had defaulted if they demanded full repayment before December 1, 2009.
The Central Bank is understood to be frustrated by the slow pace of progress with the banks on mortgage arrears and debt forgiveness.
Another senior figure within the bank says officials haven't been directly confronted on the issue, but clear signals have been sent that the Government wants more action.
"When you boil it all down, what politicians really want is debt forgiveness for their constituents. And let's face it, some of them are possibly in trouble themselves," the source said.
Mixed messages are also emerging from the banking sector about the progress in dealing with mortgage debt.
Brokers say the banks are showing a greater willingness to negotiate longer-term repayment deals with homeowners in mortgage arrears.
Some lenders are still reluctant to sit down with troubled homeowners, but most are starting to get on top of the situation, brokers' body PIBA said.
Also, credit unions are complaining about moves by the banks to offer writedowns on unsecured debt so that mortgages can be paid.
However, Bank of Ireland wrote off only €2.3m in bad mortgage debt in the first six months of last year.
The figure emerged in a strongly worded letter to the Oireachtas finance committee, in which Bank of Ireland defended chief executive Richie Boucher's stance at a recent committee meeting.