Tapping the billions of euro taxpayers have paid into the National Pension Reserve Fund to re-capitalise and part-nationalise Irish banks is being discussed at the highest government levels, senior government sources and analysts confirmed this weekend.

Government officials described the option of using the fund – Ireland's own sovereign wealth fund that consists, mostly, of global stock-market investments – as its "contingency plan" to pump state money into Irish banks.

The fund was worth €19.4bn at the end of June but is likely to have fallen in value since then amid the global markets crisis. It is believed to now hold as much as €1.5bn in cash that was held back from markets.

A senior official this weekend said the government "needed to be seen" to exhaust other options before tapping the fund, by specifically getting Irish banks to raise private capital before it could use the fund to re-capitalise.

But experts here and overseas said it was now much more likely that the Irish fund's resources will be used after the British last week offered to part-nationalise most of their banks by offering £50bn (€63bn) of taxpayers' money. Irish bank shares have dropped below levels hit almost two weeks ago when the emergency guarantee bail-out was announced. Last Friday, all four stock-market listed Irish banks – AIB, Bank of Ireland, Anglo Irish and Irish Life & Permanent – were together worth only €8.8bn.

Philip Lane, professor of international macro-economics at Trinity College, and an expert on sovereign wealth funds, said using the pension fund to re-capitalise the Irish banks was an option. "If you believe it is a good investment, it is the fund to do it," he said.

Lane said that tapping the pension fund to re-capitalise the Irish banks would continue to count as an investment, and therefore not further boost, under eurozone rules, Ireland's already ballooning budget deficit.

Peter Holler, head of division at the Organisation for Co-operation and Development in Paris, said using the pension fund to subsidise directly the Irish housing market would only extend the crisis here. "The message is: don't panic. Nobody will tell you to tighten fiscal policy," said Hoeller, referring to the options facing Minister for Finance Brian Lenihan in his 2009 budget on Tuesday.