Irish bank's deposits drop 17% since June

Ireland's second largest bank reported Friday that depositshave dropped by 17 per cent since June as individuals and businesses withdrew savings in the midst of the country's debt crisis.

Allied Irish Banks said that amounted to 13 billion euros ($18 billion Cdn).

At the same time, officials with the European Union and the International Monetary Fund continued discussions in Dublin with the Irish government on whether the countrywill take an international bailout of its banking system and under what conditions.

Allied Irish also announced plans to sell 6.6 billion euros ($9.2 billion) in new shares next month.

Assuming the government buys most of that offering, Irish taxpayers' stake in the bank would likely rise from 18 per cent to more than 90 per cent.

Alan Kelly, general manager of group corporate services at Allied Irish, told Bloomberg on Friday that its dependence on central banks for cash had risen to 27 billion euros ($37.6 billion) from a "high single-digit" billion-euro amount on June 30.

Funding conditions were "increasingly challenging," the Dublin-based bank said in a release, a reference to the soaring costs of raising funds.

Yields on Irish debt have risen as the bond markets demand a bigger return for holding what is perceived as securities with a growing risk of default.

Business tax rate may rise

On Nov. 12, the country's biggest bank, Bank of Ireland, said it had borrowed 20 billion euros ($28 billion) from central banks, compared to eight billion euros ($11 billion) at the end of June.

Ireland is struggling after a collapse in its housing market forced the country to take over three large banks. The 45-billion-euro ($62.6-billion) cost of that bailout is expected to push its 2010 deficit to 32 per cent of GDP.

The discussions about a bailout for Irish banks is widely believed to focus on whether Ireland, as a condition of receiving aid, will be forced to raise its low business tax, which the government said has lured 1,000 multinationals there in the last decade.

The potentialrescue is the latest act in Europe's yearlong drama to prevent mounting debts and deficits from overwhelming the weakest members of the 16-nation euro zone.

Greece was saved from bankruptcy in May and analysts say Portugal could be next in line.