Investors said stress tests on Ireland’s four remaining banks were reassuringly tough and signalled solvency should not be an issue ahead. But they said the scale of the task meant it was hard to be confident.

“There’s still a lot of execution risk with regards the deleveraging of the banks as part of the conditions of the stress tests and the rating of capital,” said John Hampton, credit fund manager at LV Asset Management.

“There’s not yet enough information as to how this capital will be raised and in what form.”

Dublin unveiled a grand plan on Thursday which set the final bill for bailing out its banks at 70 billion euro ($99 billion), costing each person in the Republic 15,500 euros on average.

The government’s tough restructuring means Ireland’s financial sector will look very different by 2015: there will be just two core banks, they won't have international aspirations and 72 billion euros of loans need to be sold.

Bank of Ireland’s shares jumped on Friday and banks’ senior debt prices rallied after the government said bondholders of the viable banks would not have to take a discount on their investments.

But the prospect of investing in the banks still makes some investors wary and funding remains a big concern.

“There are still many points outstanding which make valuing the existing equity in the banks near impossible... (we) would advise investors to await the capital raise details before deciding on whether or not to get involved,” said Eamonn Hughes, analyst at Goodbody Stockbrokers.

Irish banks have been unable to fund themselves in financial markets for many months and rely on over 80 billion euros of emergency loans provided by the European Central Bank in money market operations. But because the banks have only limited collateral to use in ECB operations, they are sometimes forced to turn to punitively expensive private borrowing facilities, said IFR Markets, a Thomson Reuters news and market analysis service.

Another threat facing the banks is rising euro zone interest rates; the ECB is expected to start hiking its official rates next week in response to inflation levels, making it even more expensive for Irish banks to borrow in its operations.

On Thursday the ECB helped Irish banks by suspending minimum credit rating standards for Irish sovereign debt, or for debt guaranteed by the Irish government, when the debt is used as collateral in money market operations.

But because of disagreements in the ECB’s Governing Council, it did not take the bigger step of proceeding with plans to create a new medium-term borrowing facility for Irish banks, official euro zone sources said.

This hoped-for facility might solve the collateral problem entirely and perhaps protect banks from rising interest rates. But it is now unclear whether it will ever go ahead.

Access to funds is key as the banks will have to shed assets by 2013 in order to slash the ratio of their loans to deposits to 122.5 percent from 180 percent.

Although some banks like HSBC hold more in deposits than they lend, the average loan-to-deposit ratio for Europe’s banks is 139 percent, with Santander and Barclays near the new Irish target level.

Much of the shrinkage will be overseas, where almost one-third of the banks’ 282 billion euros of loans are.

“Hedge funds are likely to be all over Dublin in the near term looking to snap up assets,” said Hank Calenti, head of bank credit research at Societe Generale in London.

Private equity and other investors are also likely to looking for bargains, but can afford to be fussy, bankers said.

Luring back depositors who have fled would help. Corporate customers have withdrawn 71 billion euros from Irish banks in two years and retail depositors have pulled out 26 billion.

The retrenchment is grim for Ireland, which for over a decade was the envy of most countries for roaring economic growth, dubbed the “Celtic Tiger.”

Overseas banks arrived in droves to tap into the boom, and in the rivalry that ensued, ratcheted up the reckless lending that caused the country’s economic crisis.

Ireland will be left with just two banks: Bank of Ireland, likely to end up majority state owned, and Allied Irish Banks, into which EBS building society will be folded, which will effectively be fully nationalized.

Irish Life & Permanent has to sell its life and pensions business and return to its roots as a mortgage lender.

The result: less competition, job cuts and higher costs for bank services.

“It’s far from ideal, but there are foreign banks here and nothing’s perfect at the moment,” said Gary McCarthy, head of Collins Stewart Quest.

Overseas banks will keep the market competitive, the government reckons. But they have also lost billions in Ireland — Britain’s Lloyds alone has shed 8 billion euros in the last two years and is quitting — and have little appetite for risk.

Denmark’s Danske Bank, for example, will target big corporates, but has no intention of buying any more Irish banking assets. The other two overseas banks, Royal Bank of Scotland and KBC, are hardly about to bulk up.

Even insiders said the return to health will be a slog.

“We need to fortify Irish banks...put a moat around them to be sure that they are extremely well capitalized... and move on,” said Fergus Murphy, the head of EBS, which will be swallowed by AIB.

“Banking is going to go back to a community ethos and is going to go back to a more stable background. Banks around the world and in Ireland too forgot what our purpose is,” he said.