Irish banks will shrink, merge or be sold off, Finance Minister Brian Lenihan said, according to The Associated Press.
The banks are saddled with past-due loans related to the country's real estate bubble. The cost of supporting the banking sector forced the government to turn to international community for support.
"Because of the huge risks they (Irish banks) took earlier this decade, they became a huge risk not only to this state but to the eurozone as a whole," Lenihan said.
Lenihan emphasized the government will meet all its debt obligations.
"We've always acknowledged as a sovereign state that we pay our senior debt. I've not seen any push to have senior debt dishonored," Lenihan said.
On Sunday, Ireland officially applied for a rescue package worth tens of billions of dollars from the EU and IMF in a bid to stabilize its banking system and avoid economic meltdown.
The exact value of the rescue package isn't clear. Goldman Sachs Group (GS) estimated that it may total 95 billion euros, ($135 billion), Bloomberg News reported.
The money for the bailout package will include potential loans from the U.K and Sweden. The Irish government is now in talks about how it will stabilize its budget via tax hikes and budget cuts.
The EU and IMF hope that the massive bailout package will help calm investor concerns about other eurozone countries such as Portugal and Spain.
"Speculative actions against Portugal and Spain are not justified, though it can't be excluded," Luxembourg Prime Minister Jean-Claude Juncker said.