The government is working on details to extend the irrevocable bank guarantee scheme beyond 2010, following discussions with interested private investors and the banks themselves who have liabilities of over €450bn.

The government will not announce the extension until the capitalisation issue is resolved, but there is growing concern all six Irish institutions covered under the scheme will be forced to roll over debt at virtually the same time in September, 2010.

There is also concern that Irish banks' borrowing costs will balloon in 2010 if banks issue debt without government backing. The extension will take one of two forms, senior government sources told the Sunday Tribune.

The first option being discussed involves simply extending the current blanket scheme for another two years.

The second proposal being weighed up by officials is the government underwriting specific bond issues, rather than guaranteeing the entire liabilities of the banks. A Department of Finance spokesman said: "The guarantee is constantly kept under review."

The government will have to extend the guarantee beyond the two years to attract outside private investment, a senior source said. Last week there were ominous signs that even with the current scheme, Irish banks are having to pay hefty premiums compared to their European banking peers.

Anglo Irish Bank set a new price level for government-backed bank bond issues after raising €1.5bn. The deal was priced at 80 basis points over mid-swaps, one of the highest premiums offered by any European bank last week.

Bank of Scotland was paying 30 basis points, Clydesdale Bank paid 35 basis points, with Goldman Sachs priced at 45 basis points. Irish Nationwide was priced at 70 basis points. Anglo last week said it was inevitable its pricing would follow a similar pattern to the other Irish banks which raised money shortly before it reached the market.

A range of interests have been contributing to the debate over whether to extend the scheme, including the Central Bank, the Financial Regulator, the Department of Finance, Merrill Lynch and the banks themselves.