The government may now be coming around to the idea that an orderly wind-down of Anglo Irish bank over a lengthy period may be the best option for the state, but the strategy is not without significant risk to Anglo's, and by implication the state's, already strained funding position.

According to the bank, under the various options for a wind-down it has drawn up, its funding would dry up and require intervention from the government or monetary authorities, such as the Central Bank and European Central Bank, as deposit- and bond-holders demand immediate repayment of their money from a bank saddled with non-performing assets.

The funding position of Anglo is already under stress – €5.5bn of deposits were withdrawn by customers in the first half of the year, the bank said last week, even though its interest rates are highly competitive – and it will come under pressure again ahead of the expiry of the blanket bank deposit guarantee at the end of this month.

Anglo is now heavily reliant on the Central Bank and other monetary authorities for funding, with €26.3bn, or 36% of the total, coming from them, according to the first-half results.

Deposits from customers have fallen to 32% of the total from 36% at the end of 2009. Non-retail deposits, such as those by companies, are down by €1.6bn since last December and retail deposits by €3.9bn.

Announcing that the bank will be wound down may please many in political circles and some economic commentators. What it is unlikely to do is minimise the cost, as the impact on the liability side of the bank's balance sheet will also have to be taken into account as well as what is needed to fill the gap left by the toxic property loans that have been written down.

'The whole market sees you coming so you get less'

"It is going to be more expensive to close the bank down, even over a longer period. The whole market sees you coming so you are going to get less for your asset. That's point number one. Point number two: your funding will walk out the door and will need to be replaced one way or the other and that's the long and the short of it," Anglo's chief financial officer Maarten van Eden said in an interview last week.

Green Party senator Dan Boyle said last week he is in favour of a swift end to Anglo's life, possibly closing the bank in four or five years' time. According to the Anglo analysis that would see its deposits flee and restrict the bank's ability to access capital markets for funding, generated a greater need for more funding from official sources. (The ECB has already made it clear that its support for the banking system across the eurozone will not last.)

"You can try to close it down but it's just going to be more expensive and it's going to require funding," van Eden said. "The argument for keeping the bank open is you create value going forward… But I think what politicians see is uncertainty. There is something attractive about being able to say: OK, this is it. We draw a line under it and there are no more loose ends and no more uncertainties. That's like the certainty of death but we prefer the uncertainty of life over the certainty of death. There are very clear arguments for it: maintaining the funding platform to the extent possible… managing assets on a going concern basis, and value creation."

Later, he said "closing it down over a very short period would be excessively expensive. Over a 10-year period, it's the same story but you avoid taking losses on the asset side. Your funding will run out the door, you will therefore have to substitute funding and then you can only sit there and pray that the markets recover in the longer term. You will get something back but you will get less back than when you were sitting there managing the portfolio as a going concern".

Extending the wind-down further – to 20 years – would see a similar outflow "as depositors and bondholders withdraw funds or let positions unwind", the bank said in the first-half results.

And a wind-down could cause collateral damage to the rest of the Irish financial system as international depositors with the bank shift their cash not to another domestic lender but out of the country altogether, Anglo says.

Bank guarantee scheme set to expire

Discussions about a wind-down are coming at a difficult time for the bank. Chief executive Mike Aynsley acknowledged that there needed to be a final decision on the bank's future in the next month. This coincides with a nervous period for Irish banks with billions of euros requiring refinancing as the bank guarantee scheme in its current form is due to expire, and there is no sign the European Commission will extend it without serious modifications.

Anglo Irish Bank alone has just over €7bn of funding that needs to be refinanced by the end of the month, though van Eden says it confident that it will be rolled over.

"We have called for the blanket guarantee to be extended. I don't think the Irish banking system is ready to do without it but it looks like we will have to do without it. We'll have to make do with a specific guarantee that only applies to three months and longer. We hope to hold on to as many corporate deposits as we can. I think that this is an issue, especially for the corporate deposit base because you're essentially asking corporate treasurers of medium companies to take Anglo's credit on its own, without government support," van Eden said.

Bringing 'finality' to the Anglo saga

The new mood of the government is to bring "finality" to the Anglo Irish Bank saga "at the least practicable cost to the taxpayer" – a sign that its commitment to the split of the lender into so-called "good" and "bad" banks may be ending.

The bank maintains the best way to recoup some of the €25bn that will eventually be poured into it is to maintain the rump of the bank's best loans and become a lender to small and mid-sized companies.

"The amount of money that has gone in so far is mostly never going to be seen again and the reason is that it is just to cover a realised loss. And then what do you do going forward? You can demonstrate fairly clearly that it minimises the cost to the taxpayer if you keep the banking platform operative," van Eden said.