A deal to bring Co-operative Bank back to mutual status has been proposed by the Coventry Building Society, the third largest mutual lender in the country.
The Coventry is in talks about a combination with the board and owners of Co-op Bank, which has been owned by a group of hedge funds since 2013. Sky News first reported the story.
Co-op Bank has also seen interest from challenger banks Shawbrook, which made a £3.5 billion approach in August, and Aldermore. Shawbrook was taken private by its former owners in 2017 and Aldermore (AIM:ALD) was bought by South Africa's FirstRand Group.
Merger discussions between the Co-op and Coventry are reported to be "progressing", according to Sky, but not on an exclusive basis.
A combined group would have assets of roughly £90 billion and around five million customers, similar in size to Virgin Money UK PLC (LSE:VMUK).
Co-op Bank, which bought a portfolio of mortgages from Sainsbury's this summer, has about 2.5 million retail customers and circa 94k SMEs, while Coventry has around two million members.