The Central Bank is desperately engaged fighting for its future. It has already lost its power to set interest rates, ceding it to the European Central Bank. It can moan all it likes about the increase in house prices, but its traditional weapon in such situations, higher interest rates, is no longer available. No matter how far the housing market may boom, it will be of only passing interest to the mandarins in Frankfurt, who are much more interested in the woes of the Central European economies.

Now the Bank is facing a threat to its role as the regulator of financial institutions, as the Tanaiste and the Minister for Finance consider a report which recommends that it loose this role to a new green field institution. If this happens, there would not be much influence left in Dame Street, even if it does retain some overseeing role in ensuring the overall health of the financial system.

The news that Bank of Ireland plans to merge with Alliance & Leicester thus comes as mixed news in Dame Street. On the one hand, it runs the risk of one of Ireland's main financial institutions being part of an entity with the bulk of its business in Britain - and the risk that the lead regulator could be the Finance Services Authority. On the other hand, however, the Bank may now argue that if the Irish side is to be lead regulator - or accepted in some kind of joint regulator arrangement - then it is essential that the established Central Bank remains in place, as it will take time for any new institution to build credibility.

Ms Harney and Mr McCreevy are not yet believed to have discussed the report from the McDowell group in detail, so there will be a few weeks of frantic lobbying to go before the issue comes before Government.