FINANCE Minister Brian Lenihan is going to seize control of the country's biggest bank -- and tell its top executives to leave if they cannot work under the new regime.
His uncompromising stance will kick off a momentous week for Irish banking and the economy, after AIB spent the weekend fighting the Government's plan to take control.
In an address to the Dail on the banking crisis, Mr Lenihan will reveal that taxpayers may have to pump as much as €16bn into the banks -- among them Anglo Irish -- to keep them afloat.
That is in addition to the €11bn already spent on propping up the two main banks -- AIB and Bank of Ireland -- and Anglo Irish Bank last year.
The Government will tomorrow signal its intention to take a majority stake in AIB when details of the NAMA discounts or 'haircuts' are also released.
While building society Irish Nationwide will have the worst discount at 60pc, AIB is set to be hit with a discount of up to 40pc, making majority State control all but inevitable.
The NAMA discounts were scheduled to be released today, but last night they were delayed once again by 24 hours. They will now appear on the same day as the minister's speech.
Financial results for Anglo and Bank of Ireland will follow on Wednesday.
The bankers, however, will be relieved to hear that the Finance Minister will not go for full-scale nationalisation.
Mr Lenihan's warning will be a direct challenge to top AIB executives, who are still not behind his plan to take a 70pc stake in the lender.
He may have to deliver his 'state of the nation' speech tomorrow without the support of the bank, unless last-ditch talks are successful.
At the weekend, both sides were at loggerheads, with divisions deepening. Mr Lenihan avoided questions last night over whether he wants further changes at the top of AIB.
However, tomorrow he will adopt an uncompromising stance, saying that if executives cannot live with a government stake of more than 70pc, they have the option to move on.
A source said the bank had still not found a solution and both sides were far apart. It is understood AIB believes the Government is demanding too high capital levels and that it is seeking to impose them too soon. But the Government has been telling the banks the capital levels are set by the Financial Regulator and they cannot force a change upon him.
The managing director of AIB, Colm Doherty, warned this month that he would prefer to first try and sell some assets, then do a rights issue. Only then would he turn to the Government for the additional funding.
But the Government is becoming concerned about the length of time it is taking to solve the banking crisis and wants to draw a line under the problem. The scale of discounts AIB's loans are taking has also forced its hand.
Speculation is now rife about whether Mr Doherty will remain in place under a government regime that is likely to hugely curb the bank's independence.
In an interview in the 'Sunday Business Post' yesterday, Mr Lenihan refused to comment on whether he envisaged any further change at AIB as part of the recapitalisation plan.
But the Government is clear that bank executives who are unwilling to live with a new regime may simply depart. A senior government source said yesterday: "I'd assume they may fall on their swords in time."
The Regulator is forcing the banks to hold higher capital buffers because he believes mortgage losses are going to escalate, posing a fresh challenge for bank balance sheets.
While AIB is set to come under government control soon, Bank of Ireland is likely to use a rights issue to limit the State's stake to below 50pc.