Ireland's embattled banks need to be bolstered by an extra €24bn (£21bn) – some €13bn of which needs to be used to prop up the troubled Allied Irish Banks (AIB).

It takes the total bill for repairing the hole in the banking sector caused by the bursting of the Irish property bubble to €70bn.

All the Irish banks are now likely to be state-owned. Two new universal banks are expected to be created from existing institutions - Bank of Ireland will remain while AIB and building society EBS are to be merged.

"We will also ensure that they are fully recapitalised so that the world looks at these core banks with confidence and they in turn help instil confidence in our economy," said Michael Noonan, minister for finance. The extra funds are within the funding envelope available for this purpose from the EU/IMF programme of support announced last year.

Ireland's central bank governor, Patrick Honohan, said it was "one of the costliest banking crises in history".

He said that by forcing banks to hold even more capital, he hoped that confidence would be restored to the sector, which is reliant on the European Central Bank for day-to-day funding.

He said the banks needed to be able to have enough capital to meet even the markets' most "gloomy prognostications".