The Government plans to burn unsecured senior bondholders in Anglo Irish Bank and Irish Nationwide in a bid to cut taxpayers’ debt exposure.
Finance Minister Michael Noonan made the announcement after a meeting with the International Monetary Fund and US Treasury Secretary Timothy Geithner in Washington.
It is understood that the Government will seek to impose losses of up to €3.5bn on some of the bondholders - although there is no guarantee that the bid will be successful.
Earlier moves have been challenged in the High Court.
And the Government has come under fire from the opposition for promising to tackle these bondholders before the election but failing to deliver since.
Mr Noonan said he had discussed the plan with the IMF, which supported the strategy.
He added these banks are no longer normal institutions.
Mr Noonan also said he would seek support from Europe to propose significant cuts in the money to be paid to these bondholders.
He added that Mr Geithner will support Ireland’s efforts to maintain our low 12.5pc corporation tax while the treasury secretary has agreed to take the issue up with French authorities who have been lobbying strongly for a cut as part of our EU/IMF loan agreement.