The Irish government's plans to create a bad bank suffered a setback this week when the country's Supreme Court ruled that companies belonging to Dublin's biggest developer, Liam Carroll, should be placed in liquidation.

There are fears that the Irish property market, which has already experienced one of the sharpest declines in the world, could be flooded with cheap flats and half-built office blocks. This in turn could destabilise the National Asset Management Agency, the Irish government's bad bank which is due to begin operations next month after parliament returns early from holidays to debate the legislation which the government says is necessary to prop up the country's main banks.

It also threatens to hit part-nationalised UK banks, which are owed massive sums by Irish developers. Almost half the €1.2bn (£1.03bn) owed to banks by Mr Carroll, for example, is due to HBOS's Bank of Scotland and Ulster Bank, the subsidiary of RBS, which is 70% owned by British taxpayers.

The Independent