THE Government believes getting the banks to agree a new deal on lending and mortgages will help the case for the release of funds from the new EU bailout fund.
Taoiseach Enda Kenny expects a deal on the country's crippling bank debt – from AIB, Bank of Ireland and Permanent TSB – by summer. He's also vowing there'll be a separate deal by March on the massive Anglo Irish Bank debt.
At the same time, the Government is going to force AIB and Bank of Ireland to set specific targets for dealing with distressed mortgages and lending to business and house buyers.
Government sources say the two issues of a domestic bank deal and an EU debt deal are intertwined. They are trying to pin down the banks' role in the economic recovery – to help prove that any funding from the EU bailout fund will be used wisely.
"All of this is about moving beyond the legacy (of banking problems in the past)," a coalition source said.
Last week, Mr Kenny confirmed the Government had a June deadline in mind for a clear signal on the level of the writedown of debt from the new European Stability Mechanism.
"By June, following the decision of the European Council, we expect agreement on the mechanics and the modalities of reducing the burden that we took on – or that the Irish taxpayer took on – from the recapitalisation of growing concerned banks that is Bank of Ireland, AIB and PTSB," he said.
"So while an actual transaction may not be possible until 2014, a clear signal on how this is going to be done will certainly strengthen market confidence and lower interest rates for Ireland as we seek to exit the programme."
In the new year, the Government will be calling in the banks to tease out their plans for the coming years, ahead of the end of the state bank guarantee in March.
AIB and Bank of Ireland will be forced to set specific targets for dealing with distressed mortgages and lending to business and house buyers.
The coalition is also to talk to Permanent TSB about its plans now its future is no longer in doubt.
The banks are due to exit the state bank guarantee next year.
Meanwhile, Mr Kenny is revamping a cabinet committee to hold the banks to account. The Government wants specific targets on lending of new money to businesses – not just rollover finance; approval of mortgages for home buyers; and the numbers of mortgage arrears cases being dealt with.
As well as the Taoiseach, Tanaiste Eamon Gilmore, Finance Minister Michael Noonan and Public Spending Minister Brendan Howlin, he is bringing in Jobs Minister Richard Bruton, Social Protection Minister Joan Burton and Justice Minister Alan Shatter to scrutinise the banks.