The issue of who will regulate the merged Bank of Ireland and Alliance & Leicester is now the key issue to be sorted out, if the merger is to go ahead. It is understood that discussions have commenced between the Central Bank of Ireland and the Financial Services Authority, which regulates the industry in the UK. However, given the size of the merger and its cross-border nature, the authorities in the two jurisdictions are likely to take some time.

Regulators on both sides of the Irish Sea will realise that they are dealing with a significant merger in scale and the first of its kind between a bank inside the euro zone and one outside. Both regulators will retain a role in whatever regime emerges, but the question remains of whether one of them will become the lead regulator for the new institutions, and if so, which one.

The issue is linked to where the new bank will have its headquarters. It is understood that the preferred option is that it will have joint headquarters in Dublin and London, although it remains to be seen whether the two regulators would approve of this.