CURRENT ACCOUNT: Is Michael Soden's grand plan to merge Ireland's two biggest banks coming closer to being realised? This week, Bank of Ireland and AIB agreed to forge a new alliance that will substantially reduce the cost of processing their customers' accounts.

It's a clever and radical move for both banks. Soden, the Bank of Ireland chief executive, has made a strong case for the need for a more robust Irish bank to support continued strong economic growth in the Irish economy but AIB has dismissed the notion.

It has emerged that the proposal to link AIB and Bank of Ireland's information technology divisions was first mooted last October, shortly after Soden became chief executive. The banks suggest the initiative came from within the information technology divisions and is not a precursor to a complete merger between the two arch-rivals.

The Irish Bank Officials Association is not fully convinced and is criticising the move as a threat to jobs and neither of the banks are ruling out future co-operation in other areas. On the face of it, the initiative to establish an independent joint venture company that will share the costs of data processing, procurement and infrastructure maintenance in the UK and Ireland is a clever move.

Both banks have a relatively modest customer base in the small Irish market when compared with larger British and European banks.

By coming together they will be able to achieve sufficient scale to squeeze further costs out of their respective businesses, something that Bank of Ireland is under particular pressure to achieve.

The European Commission will begin to examine the proposal and is expected to give it the green light in the months ahead.

By creating a separate independent company, the banks are undertaking that there will be no sharing of customer information and will contend it does not raise any competitive issues.

The banks are expecting the new company, which could be in operation by the end of 2002, to shave some €20 million off each of their information technology services costs annually.

Only time will tell whether this is a first step towards a merger of AIB and Bank of Ireland or a defensive move by two banks trying to retain control of their businesses.