Ireland’s government will invest 7 billion euros ($9 billion) in Allied Irish Banks Plc and Bank of Ireland Plc, cushioning a rise in bad debts as the economy shrinks.

The government will pump 3.5 billion euros into each bank and get warrants allowing it an option to buy a 25 percent stake in the lenders, the Finance Ministry in Dublin said yesterday.

The government said it’s in “discussions” with Irish Life & Permanent Plc, EBS Building Society and Irish Nationwide Building Society over their capital.

Prime Minister Brian Cowen is propping up the two lenders as they face rising losses on loans to property developers.

The government, which said it’s not seeking to take control of banks, will also review its deposit and borrowings guarantee protection for six lenders covered by the plan.