The Commission said that it is satisfied that the scheme is in line with its guidelines on impaired asset relief for banks that allow state aid to remedy a serious disturbance in a member state's economy. The scheme will help address the issue of asset quality in the Irish banking system and promote the return to a normally functioning financial market.

Commenting, Competition Commissioner, Joaquín Almunia, said: "Ireland's financial sector has been one of the most affected by the global financial crisis in Europe and the burst of the Irish real estate bubble has only compounded the problems. This impaired asset measure, which is specifically targeted at real estate assets, is therefore key to cleaning up Irish banks' balance sheets. This is an important step towards the overall restructuring of the sector and its return to a normal and responsible functioning of the market."

The purpose of NAMA is to restore stability to the Irish banking system by allowing participating financial institutions to sell to the agency assets whose declining and uncertain value is preventing the long-term shoring-up of the financial institutions' capital and, therefore, the return to a normally functioning financial market.

The scheme was open to all systemically-important credit institutions established in Ireland, including subsidiaries of foreign banks, with a 60-day application window that expired on February 19. Five institutions will participate: Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish Nationwide Building Society and Educational Building Society.

The assets targeted by the measure are all loans issued for the purchase, exploitation or development of land and associated loans. Following the bursting of the Irish real estate bubble, these constitute the riskiest parts of the participating institutions' asset portfolios. The Irish authorities anticipate that NAMA will purchase land and development loans as well as associated commercial loans with a nominal value of approximately EUR80bn for an estimated purchase price of EUR54bn.

NAMA's main objective is to manage the assets expeditiously with a view to maximising their value and recovery prospects in the interest of the State.

The Commission has found that the establishment of NAMA constitutes state aid to the participating institutions pursuant to Article 107(1) of the TFEU (Treaty on the Functioning of the European Union), but that this aid is compatible by virtue of Article 107(3)(b).

According to the EC, the scheme and intended operations of NAMA are in compliance with the guidelines set out in the Commission's communication on the treatment of impaired assets as regards disclosure and transparency, eligibility of institutions and assets and the alignment of banks' incentives with public policy objectives. In particular, the Commission has found that the scheme includes an adequate burden sharing mechanism through the payment of a transfer price which is no greater than the assets' long-term economic value, and the inclusion of an adequate remuneration for the state in the rate used to discount the assets' long term economic cash flows.

The Commission's approval concerns only the NAMA scheme. The Commission will assess the compatibility (and, in particular, the actual transfer price) of the transferred assets when they are separately notified by the Irish authorities. These individual reviews will include a claw back mechanism in case of excess payments.

This is the second asset-relief scheme approved by the Commission after that submitted by Germany in May 2009 and cleared last July.