What an intriguing coincidence that Fine Gael leader Enda Kenny announced last Wednesday that his party would vote against the government's €1.5bn plan to recapitalise Anglo Irish Bank just as it emerged that the UK Treasury was drawing up a plan to establish a so-called 'bad bank' to absorb toxic assets and jump-start the ailing British financial sector.

Within 24 hours, finance minister Brian Lenihan had announced he was voting against his own Anglo recapitalisation plan and fully nationalising the bank instead, with a promise to "trade normally as a going concern, with appropriate government support as necessary".

The British plan was being monitored closely by our own Department of Finance, according to reports last week, and now it's clear why. But Kenny seems to have got the jump on them. His plan for Anglo involved nationalising the bank, guaranteeing deposits and turning what's left into "a vehicle for the purchase (at a massive discount)… of developer loans made by other banks" – in other words, a national bad bank to leech away the poison on the "good" banks' balance sheets.

With its action late Thursday night, the government has already completed the first two steps of the Kenny plan. All that remains is to devise a mechanism whereby Anglo begins to acquire the junk-level property loans that are weighing down the balance sheets of AIB, Bank of Ireland, EBS and, heaven help us, Irish Nationwide.

There is merit and precedent in the idea. Sweden survived the Nordic banking crisis in the early 1990s by establishing a separate institution to buy the bad assets of Nordbanken – at a discount of about 25% – and winding down the book, allowing Nordbanken to get back to lending, unencumbered by the fear of massive future asset write-downs and loan losses. This sort of discounted transfer meant the pain was taken up front and normal economic service could resume that much more quickly. The US did something similar when it created the Resolution Trust Corporation out of thin air in the late 1980s, which helped clean up the mess of liquidated assets from the savings and loan crisis.

Despite the insistence by Anglo chairman Donal O'Connor that the nationalisation would "preserve the bank as a going concern and [was] not a wind-down", Lenihan was less steadfast in his Thursday night press conference.

He said then that the department was exploring ways Anglo could "be used for the public good". Since Anglo is not set up for large-scale SME business banking or personal lending, it's hard to interpret this as anything but a willingness to look at the 'bad bank' option for Anglo. That is, unless the government intends to reinflate the property bubble by giving more money to Anglo's existing customer base of large developers and speculators.

The all-or-nothing scope of the bank guarantee scheme implicated us all in the future of the six covered institutions (AIB, Bank of Ireland, Anglo, Irish Life & Permanent, EBS and Irish Nationwide), yet there has been little discussion of what that future entails – whether, for instance, one or more banks should be allowed to wind down or become a repository for the bad assets of the others. Instead, the tacit premise has been that all must survive, whether they all have a viable future or not.

The Anglo board's decision to appoint insider Declan Quilligan to the chief executive's job – vacated by David Drumm in the wake of the Seán FitzPatrick loan scandal – indicated Anglo was not expecting to be run down, let alone become a 'bad bank', but to continue as a going concern, as O'Connor said on Friday. The government, however, can now do what it likes.

The first priority is to improve the funding situation at Anglo. In practical terms this mean retaining and/or attracting deposits to keep the bank liquid. Next it means meeting existing and forthcoming debt obligations to bond-holders. It might eventually mean raising more debt finance to cover loan commitments that have not yet been drawn down.

Beyond this level of housekeeping is the 'bad bank' option. The negative market reaction to the Anglo nationalisation drove shares in AIB and Bank of Ireland down last Friday on concerns that write-downs on Anglo assets would force these banks to reprice their loan books too, causing impairment provisions to balloon. If Anglo were to buy those assets, though, it might liberate those banks – both of genuine systemic importance – to get back to normal business.

However, funding would be a concern. The Swedish bad bank, Securum, raised about 50% of the money for its assets with a loan from Nordbanken; the rest of its finance came from the state. This was at a time when, although the Nordic countries were in crisis, the rest of the world wasn't in the same boat. That isn't the case now. Debt markets are still very shaky and even sovereign debt is hard to come by – just ask the Germans, who couldn't get their most recent bond issue away. Irish bond spreads against the German bunds have widened considerably in the past few days and are now the worst in Europe, so money will be expensive even if it is readily available.

Moreover, an Irish bad bank would need to buy a minimum of €12bn of bad assets, but realistically the number is likely to be higher. It's hard to see the other banks coming up with 50% of that, let alone the government adding another €6bn to its debt pile. Yet again, the situation could always become more desperate.

The other, more immediate hindrance to the bad bank solution is the lack of a reliable market for the most troubled assets – commercial property and development loans. Because there is so little sales activity in the market, accurate prices are hard to come by. That means the banks would probably quibble inconclusively about how to price and discount the loans they most wanted to shift. Obviously each bank would want the highest possible sale price while the bad bank would be looking for the deepest discount.

This problem has bedeviled the 'troubled asset relief programme' in the US so badly that Washington threw in the towel and ultimately started using the $700bn it had set aside for the purpose just to recapitalise the troubled banks, rather than the troubled assets.

In Ireland, we skipped directly to that step, perhaps sensing the discord. There may be talk to come of a new consensus, however.