The European Commission on Friday approved Ireland's plan to create a state-owned bank that will secure the future of private banks by absorbing their risky loans, nominally valued at 77 billion euros ($105 billion).

EU antitrust chief Joaquin Almunia said the "bad bank" plan will help Ireland's financial markets return to normal. He said the measure was compatible with EU subsidy rules taken after the financial crisis that hit Ireland particularly hard.

The state-owned National Asset Management Agency is meant to restore stability to the Irish banking system that is now burdened with assets of uncertain value.

These are loans issued notably for the purchase or development of land at a time when the Irish economy was booming. But following a bursting of the real estate bubble, they became the riskiest parts of Irish banks' asset portfolios.

Approval of the NAMA plan is the second "asset-relief scheme" approved by the EU. It approved a German plan last July.

Ireland sought EU approval for its plan on Dec. 28. It estimates the loans NAMA will absorb have a nominal value of  77 billion euros but are actually worth only 54 billion euros.

The bank rescue plan was open to all large credit institutions in Ireland, including subsidiaries of foreign banks. Five — Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish National Building Society and Educational Building Society — will take part in the NAMA plan.

In a statement, Almunia said Ireland's financial sector "has been one of the most affected by the global financial crisis in Europe" and that the subsequent bursting of the country's real estate bubble only made matters worse.

He said the NAMA scheme was "key to cleaning up Irish banks' balance sheets. This is an important step toward the overall restructuring of the sector and its return to a normal and responsible functioning of the market."

He said the EU will see to it that the Irish authorities ensure that NAMA maximizes the recovery value of the bad loans.