A merger of the State-owned ACC Bank with TSB Bank could make sound business sense. Both are relatively small banks operating in a competitive marketplace against a background of a globalising industry.

But whether such a merger would be a sound business move would depend on the conditions agreed in the deal. Crucial to achieving a competitive and viable business operation capable of growth and the provision of a good service to customers would be the arrangements for future financing and achieving costs savings.

Flotation on the stock market would be vital to ensure access to capital for the future financing of a merged operation. There is a strong appetite for banking shares and TSB/ACC shares would probably be well received.

But potential shareholders would need to be convinced that the merged operation was capable of producing good profit growth. TSB and ACC are both relatively high-cost banks with high-cost income ratios, so an essential part of any proposed merger and flotation would be a cost reduction programme.

With the unions at ACC set against compulsory redundancies this may seem difficult to achieve. But there may be ways to reduce costs without political fallout. In the current strong economic environment banking sources say there is a fairly high staff turnover in the industry, so some staff reductions could be achieved by natural wastage. There is potential for negotiating a voluntary redundancy/productivity package as part of an employee shareholding scheme.

A merged operation would be worth around £500 million. It would still be small fry compared to the two largest banks, AIB and Bank of Ireland, with market capitalisations of £8 billion and £7 billion respectively.

So a merger may not be the end of this saga. In the medium term the merged bank may find itself seeking an international partner, or significant minority shareholder.