Pension funds could end up owning some of the bonds Nama will have to issue to banks in exchange for their bad development loans and other assets, the Department of Finance has confirmed.

The government intends Nama to issue as much as €60bn in bonds for the assets directly to the participating banks, which will then be able to use them as collateral to secure money for new lending from the European Central Bank. But the banks also have the option of selling the bonds on the secondary market, where all kinds of investors, including pension funds, could buy them.

According to a department spokesman, the idea behind the bonds-for-assets mechanism was to turn illiquid assets into liquid assets to generate much-needed cash for the banks. The spokesman said this works either through the ECB or through the secondary market.

It is not yet clear whether there would be any advantage to the banks in selling the bonds on the secondary market, however. While the ECB does apply a small haircut on collateral, reducing the amount a bank can withdrawing in borrowing facilities, bonds on the secondary market tend to trade below face value.