The European Central Bank is putting the finishing touches on a new facility that will give troubled euro zone banks liquidity over a longer time frame, throwing a lifeline to Ireland's ailing banks.

A euro zone central banking source told Reuters on Saturday that the plan will initially be tailor made for Irish banks and was likely to be announced next week to dovetail with the results of fresh stress tests on the country's lenders.

This will replace the ELA (Emergency Liquidity Assistance) that is currently being provided by the Irish central bank, the source said speaking on the condition of anonymity.

It will probably be similar to the SMP (ECB bond buy programme) in the sense there will be no fixed time frame on it; if you had put a 5- or 10-year deadline on it these people may have been tempted to ignore the problem until the end date was approaching.

He added that although it would initially be tailored for Irish banks, it would subsequently be available euro zone wide.

It would be under the control of the ECB's Governing Council which would set the conditions attached to the loans on a case by case basis.

An EU-IMF bailout last year has failed to resolve Ireland's banking crisis and after an outflow of deposits and with other banks unwilling to lend to them, Irish lenders remain dependent on the central bank for their day-to-day operations.

The six domestic banks are estimated to have outstanding loans of around 150 billion euros ($210 billion) from the ECB and Ireland's own central bank at the end of February. Around 70 billion euros was made available under the Irish central bank's ELA.

Ireland's new government, elected on a mandate to renegotiate the bailout, has been in talks with the ECB for weeks to try and secure medium-term funding for its banks and this facility should provide some comfort to the markets when the results of the stress tests are published on March 31.

The tests, agreed as part of the EU-IMF bailout, are expected to show that Bank of Ireland, Allied Irish Banks, Irish Life & Permanent and EBS Building Society will need around 25 billion euros, a Reuters survey of analysts showed.

The EU-IMF bailout set aside 35 billion euros for Ireland's banks.

The Irish Independent newspaper reported on Saturday that the stress tests would reveal a capital hole smaller than the 35 billion euros earmarked.

Without citing any sources, the newspaper said that Allied Irish Banks, which has been effectively nationalized by the state, may need more than 10 billion euros, Bank of Ireland would need under 5 billion euros while Irish Life & Permanent and EBS Building Society would need single billion sums.

(Reporting by Carmel Crimmins; Editing by Ruth Pitchford)

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