Sept. 30 (Bloomberg) -- Ireland said it will guarantee its banks' deposits and debts for two years, seeking to calm investor concern after banking shares fell 26 percent in Dublin yesterday.

``The government has decided to put in place with immediate effect a guarantee arrangement to safeguard all deposits, covered bonds, senior debt and dated subordinated debt,'' the finance ministry said in an e-mailed statement.

The guarantee will last until September 2010 and covers Allied Irish Banks Plc, Bank of Ireland Plc, Anglo Irish Bank Corp. Plc, Irish Life and Permanent Plc, Irish Nationwide Building Society, the Educational Building Society and ``such specific subsidiaries as may be approved by government,'' the ministry said.

Ireland joins governments around the world that have stepped in to protect banks following the seizure in credit markets. The U.K. yesterday took control of Bradford & Bingley Plc and Fortis received an 11.2 billion-euro ($16.3 billion) bailout by the governments of Belgium, the Netherlands and Luxembourg.

``This is an unbelievably positive move for the Irish banking sector,'' Kevin McConnell, head of research at Bloxham Stockbrokers in Dublin, said in a phone interview. ``It's really exceptional.''

Fitch Ratings today affirmed its AAA rating on Ireland following the decision to guarantee the banks' liabilities.

``This proactive measure should help buttress confidence in the Irish financial system and limit the risks of a deeper and more-prolonged-than necessary recession at a time of unusual stress in global banking markets,'' Fitch said in a statement.

Ratings Affirmed

Standard & Poor's affirmed its ratings on the four publicly traded banks covered by the guarantee. Their ratings are on ``CreditWatch'' with positive implications, S&P said in a statement.

Ireland became the first euro-area economy to slide into a recession, as homebuilding plunged amid a slump in house prices. House prices fell 9.4 percent in July from a year earlier. Bank of Ireland, the country's second-biggest bank, said on Sept. 17 it would slash its dividend by 50 percent and post a drop in profit on higher loan losses.

The guarantee is being provided at a charge to the banks and is subject to ``specific terms and conditions so that the taxpayers' interests can be protected,'' the ministry said.

To contact the reporter on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net

Last Updated: September 30, 2008 12:56 EDT