The Irish Government is nationalising its third largest bank in a further sign of the country’s deepening economic crisis.

Dublin was forced to abandon attempts to keep it in private hands when it announced the U-turn on a previous pledge which would have seen ordinary shareholders retaining 25 per cent of the bank.

At a press conference held at Government Buildings, the finance minister Brian Lenihan said that the admission last month by former chairman Sean FitzPatrick that he had taken secret loans of over €87 million over a period of eight years had caused "serious reputational damage" to the bank.

Mr FitzPatrick, its former chief executive, resigned, admitting “inappropriate” behaviour but denying having done anything illegal. Chief executive David Drumm also resigned and two top executives.

The financial regulator Patrick Neary also announced his early retirement last Friday evening.

"Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland,” Mr Lenihan said.

“Anglo has a balance sheet of some €100 billion with a substantial deposit base which the state is determined to safeguard. The Government has made clear that it will ensure its continued viability. Anglo Irish Bank will continue to trade normally as a going concern, with appropriate Government support as necessary. All Anglo employees remain employed by the company."

But Mr Lenihan admitted that he no longer believed that recapitalisation was “now the appropriate and effective means to secure its continued viability.

"The Government believes that the prospects for the institution are solidly underpinned in the new structure, with the benefit of state ownership and a renewed management and Board. In the current circumstances the State is the only available potential owner," he said.

Donal O’Connor, who replaced Mr FitzPatrick, would stay on as chairman of Anglo Irish Bank.

Mr Lenihan said the Bank would "be managed on an arms length basis as a commercial entity" and that shareholders rights would be respected.

"All customers of Anglo Irish Bank can be assured that the full amount of their deposits and savings are further safeguarded by this action.

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