SINCE Halifax Bank of Scotland was swallowed by Lloyds TSB in a contentious rescue deal in 2008, Scotland's banking sector has been dominated by the combined Lloyds Banking Group and Royal Bank of Scotland.

With the Clydesdale in retreat, the acquisition of Lloyds TSB Scotland by the Co-operative Bank brings a badly needed challenger into the market.

Much attention will be on the ostensibly knockdown price at which Co-operative has acquired a business that has 632 branches both sides of the Border.

On top of this Lloyds is providing financing for the deal and letting Co-operative use its systems.

But we should not forget that the Co-operative is still taking a major reputational gamble by expanding at a time when low interest rates and economic stagnation is squeezing profits in the sector.

Meanwhile, the deal means Lloyds can now focus on its remaining problems, not least sorting out the risky corporate loans made by Bank of Scotland on both sides of the Irish Sea.

Lloyds chief Antonio Horta-Osorio might also be able to start thinking about exiting Government ownership.

A major test for Co-operative is whether in its expanded form it continues to provide an alternative way of operating to the established High Street names.

Co-operative Group chief executive Peter Marks talks of its "customer-led, ethically-driven" approach.

He told The Herald: "We are confident this business is going to be profitable. But it won't be super profits made by taking excessive risks."

For many Scottish businesses and individuals the test will be decent customer service and improved access to loans.