THE DEPARTMENT of Finance will publish legislation on Monday setting out a so-called special resolution regime to deal with distressed financial institutions, meeting a deadline under the EU-IMF deal.

The Bank Resolution Bill will give the Government tools to deal with failed banks aimed at protecting depositors and the financial stability of the country.

Under the legislation, the Government will be able to appoint a special manager where, in the view of the Central Bank, an institution’s financial condition has severely deteriorated.

It will give powers to the Central Bank to split an insolvent bank into good and bad parts, and to transfer deposits and loans to other financial institutions.

The legislation will allow the Government to set up “bridge banks” that can be used to hold parts of failed banks pending their transfer to other institutions.

The EU-IMF programme for financial support agreed with the Government last December set a deadline of the end of February for the establishment of legislation creating a bank resolution regime.

The legislation will create a long-term replacement for the Credit Institutions (Stabilisation) Act, the sweeping bank resolution legislation rushed through late last year.

That legislation was used this week to transfer €12 billion in deposits out of Anglo Irish Bank and Irish Nationwide.

The absence of bank resolution legislation in many countries prevented swift government action to save distressed banks and tackle the financial crisis during 2008.

The UK introduced bank resolution legislation in February 2009.

Central Bank governor Patrick Honohan said in his report on the banking crisis that the Government’s decision not to allow a bank to fail downplayed the importance of resolution legislation.