Ireland announced Tuesday it will end a controversial blanket bank guarantee scheme that was introduced in 2008 when bank shares collapsed at the onset of the eurozone crisis.
"I am very pleased to announce the government's decision to end the bank guarantee for new liabilities from midnight on 28 March 2013," Irish Finance Minister Michael Noonan said Tuesday evening.
The blanket guarantee, called the Eligible Liabilities Guarantee Scheme (ELGS), was introduced in September 2008 as a measure to maintain the stability of the eurozone nation's financial system.
A collapse in the share prices of Irish banks as losses mounted from years of reckless property lending threatened to trigger a run on bank deposits, prompting the government to act and provide state guarantees for eligible deposits and liabilities.
Nevertheless, in late 2010 Ireland was forced to seek a 85 billion euro ($111 billion) EU-IMF bailout after the massive bank liabilities threatened sovereign finances.
Noonan said the removal of the controversial ELGS was the culmination of government efforts "break the negative link between the banks and the state".
The surviving Irish banks including, Bank of Ireland, Allied Irish Bank and Permanent TSB paid a high price for the protection of their depositors, with the government collecting 3.8 billion euros in fees by the end of last year.
"The ELGS was introduced as a measure to stabilise the financial system at a time of unprecedented market turbulence, which is no longer evident," the chief executive of AIB, David Duffy said in a statement.
"We welcome the announcement today and expect that this move will have a positive impact on the operating performance of AIB over time as the bank returns to long term sustainability."
The Irish Banking Federation also welcomed the announcement and agreed it marked a further significant step in the normalisation of the banking system.
In another significant step, failed Irish banks, Anglo Irish Bank and Irish Nationwide, known as the Irish Bank Resolution Corporation, were put into liquidation earlier this month.