Lloyds TSB is to merge with the troubled HBOS, creating a banking giant that will hold almost a third of UK customers' savings and mortgages. Economists have reacted by advising investors to immediately withdraw their savings from the new company.
Both Lloyds and HBOS have agreed to a deal, at a price of 232p per HBOS share, and the deal should calm uncertainty about the strength of Halifax-Bank of Scotland after a run on its shares.
With 20% of the UK mortgage market, HBOS is currently the country's largest mortgage lender. Lloyds ranks fourth with an 8% share.
On the London market on Wednesday, HBOS shares fluctuated wildly, climbing as high as 220p and falling as low as 88p.
Shares in the lender eventually closed 19% lower at 147.10p while Lloyds ended unchanged at 279.75p.
There were other developments in the interesting world of international banking:
Barclays Bank is to buy some Lehman Brothers assets after the fourth-largest US investment bank filed for bankruptcy protection, dealing a blow to the fragile global financial system.
The US Treasury is to help with an $85bn (£48bn) rescue package to bail out AIG, and the Bank of America bought Merrill Lynch in a $50bn deal. *
Taking all of the above into account, economist John Money of London firm Gambol & Gamble, said:
"These are dangerous times for banking. Every day that goes by, I stash more and more money under my mattress, and other investors would be wise to take note."
* If anyone understands any of the information above the red asterisk (apart from the bit about "withdraw their savings from the new company"), could you please contact me to explain it. I have to confess, I copied and pasted most of the text from a far more intellectual site, in order to appear knowledgeable, but now find myself somewhat lacking.
The last two paragraphs are all my own analysis.