FURTHER GOVERNMENT funding for Anglo Irish Bank would lead to “a revolution in the streets’’, Fine Gael leader Enda Kenny warned.

“Fine Gael put forward a credible and workable solution for Anglo Irish Bank,’’ he said. “Break it up into a good bank and bad bank.’’

He challenged Taoiseach Brian Cowen to say that the Government would not put “one further cent of taxpayers’ money’’ into the bank unless it put forward a proposal in line with the Fine Gael suggestion so that those who invested in a speculative fashion for return could share some of the pain.

Mr Cowen said the bank had put a plan to the European Commission about setting up a self-contained bad bank idea and providing for a new good bank idea.

Earlier, Mr Kenny referred to the publication of the “worst ever results’’ from Allied Irish Banks (AIB).

He added that Minister for Finance Brian Lenihan had said that the Government was deeply embedded in the banking sector when the guarantee was passed by the House.

Conditions had been laid out for recapitalisation and what the consequences might be.

“In the intervening period, we have had no credit being lent, no return for the taxpayer and no dividends.’’

He challenged Taoiseach Brian Cowen to say what conditions he would lay down before considering giving any further funding to AIB. Mr Cowen said the Government was preparing a comprehensive response to all of those issues.

The AIB results, he added, showed that Nama was forcing the banks to face up to the reality of their bad loans.

“Everybody knows that the banks lent far too much to speculative property development,’’ he added.

“Nama is making the banks take the losses on these property loans upfront, and that that is what is reflected in the large loss that the AIB is reporting.”

Mr Cowen said that without Nama, the banks would have inevitably tried to do what the Japanese banks had done in the 1990s, which would be to spread out the losses over the next decade to the detriment of lending to viable small businesses and households.

“I am glad to note that the governor of the Central Bank said he believed Nama and the recapitalisation of the banks would create the foundations for the recovery of banking when he spoke to the Oireachtas finance committee earlier this afternoon,’’ he said.

Labour leader Eamon Gilmore said that the Government’s policy on the banks was not working as was shown by job losses and company insolvency.

Banks, he said, were not lending to business.

“We are now in the third calendar year of this recession,’’ he said.

Mr Gilmore asked Mr Cowen if he had any plans to change Government policy on the banks, or were they going to have a continuation of a policy which was resulting in little or no credit to businesses and leaving the taxpayer to dig deeper and deeper to pay to the banks.

Mr Cowen said that as well as job losses, new jobs had also been announced.

The Government had made it clear that if further recapitalisation was required, its preference was that it should be raised from private sources in the first instance, he added.

If that was not possible, the State would provide the capital, said Mr Cowen.

“If the State provides capital for a financial institution, it will take ordinary equity in that institution,’’ he said.

Mr Cowen said that the purpose of recapitalisation was to protect and create jobs.