Commercial bank chiefs were told of the initiative in a meeting yesterday with Ruairi Quinn, enterprise and employment minister. He reiterated criticisms by the Prime Minister last week of excessively high interest rates.
Mr Quinn stressed taxpayers' money could be risked in an underwriting scheme only if it led to new job creation.
The surprise move puts in doubt the Irish government's aim of creating a third banking force from state lending institutions to challenge the home market dominance of Allied Irish Banks and Bank of Ireland.
Mr Quinn said surveys pointed to the lack of affordable capital as a key reason for the high number of new business failures in the Irish Republic, which has one of the EU's worst unemployment rates.
His loan underwriting offer highlights the government's failure to win bank support for a Ir pounds 100m ( pounds 100m) capital fund to help expansion of cash-starved small and medium enterprises.
Both National Irish Bank, owned by National Australia Bank, and Ulster Bank, part of NatWest, hope to buy Ireland's Trustee Savings Bank. Ulster this week offered to top NIB's standing offer of pounds 100m.Reuse content