Two major Irish banks have responded to speculation about mergers and consolidation in the sector.

Bank of Ireland said it had received what it called 'unsolicited approaches' from a number of parties interested in investing in the bank. But, in a statement to the stock exchange, it said no decision on these had been made, and it would keep shareholders informed. It said it had issued the statement after media speculation.

This lunchtime, Irish Life & Permanent said it had been in discussions with the EBS Building Society about how the two institutions might work together 'in the current market environment'.

This followed reports that a major consolidation of Irish banks has emerged as a possible solution to the banking crisis in meetings between the Minister for Finance and the banks.

But Minister Batt O'Keeffe stated tonight that media characterisation that the discussions were about a two-bank model is simply untrue. He said further discussions between the parties will resume in a week.

Speaking at a Construction Industry Federation dinner in Dublin this evening, Minister O'Keeffe said that the Government has already taken important steps with the bank guarantee scheme, which was essential to address an immediate liquidity crisis.

He admitted that further challenges remain and said that the Government is working extensively to ensure that the Irish financial sector is fit for purpose and is in a position to provide credit to sustainable businesses.

He confirmed that structured discussions have taken place between the Minister for Finance and the Chairmen and Chief Executive Officers of the six guaranteed institutions and that the Minister has asked the guaranteed institutions to reflect on a number of matters.

Other banks

Anglo Irish Bank boss David Drumm has written to staff today assuring them the lender would remain independent.

AIB's chief executive declined to comment on the reports. Arriving at a function in Dublin this afternoon, Eugene Sheehy said that shareholders 'read what they read but we have no comment to make'.

Mr Sheehy said the Government and banks were talking to one another and he would not be making any comments on the nature of those talks. Asked if he could see a situation where there would be only two large banks operating in the Irish market, he responded that that was speculation.

Looking ahead

Since the State's guarantee for banks the Finance Minister has the power to force mergers between financial institutions.

In the course of meetings in Farmleigh the possibility of a radical overhaul of the banks has emerged. After the meetings some participants believed only Bank of Ireland and AIB would remain after the shake-up.

Yesterday, Mr Lenihan said his meetings were focused on ensuring that there would be enough credit for Irish businesses.

The suggestion of a major wave of consolidation would also have to be linked with fresh capital for the banks. But there is still no clear picture of how a final deal would be put together or how long it will take.

Meanwhile, the IBOA union has said the Government should make a public statement clarifying its future plans for the Irish banking sector.

General secretary Larry Broderick described media speculation about the meetings between Government and senior executives of Irish financial institutions as 'very disconcerting' for staff and their families as well as customers and shareholders.

Mr Broderick said that the Minister for Finance 'should confirm that all stakeholders in the Irish banking industry will be consulted in shaping the future direction of Irish banks'.

The Consumers Association of Ireland has described the possible consolidation of banks as regressive for consumers.

Chief executive Dermot Jewell said consumers had to be realistic about the need for action to protect the banking system. But he said the Government also needs to be aware of the need to protect customers, and must provide some form of guarantee that bank customers are not going to be bled dry as a result of the process.

He said the idea of putting all eggs in one basket is regressive, and added that there is a wariness among consumers about what consolidation would mean for them. Consumers have made a choice to go to particular banks for particular reasons, he said, and if that choice was now to disappear it would create difficulties for them.

Bank of Ireland shares closed up 24 cent at €1.25 in Dublin this afternoon, while Irish Life & Permanent was down 5 at €1.10.