CYBG appears to be moving closer to a takeover of Virgin Money which would create a banking group that may have a better chance of competing against the high street giants than the firms do separately.

The Clydesdale Bank owner appears to have won the support of Virgin Money’s board for a tie up both sides reckon has strategic logic behind it after sweetening the proposed terms.

With shares in Virgin Money trading at within 5 per cent of the valuation attached to them by the proposed bid the City seems to regard the all-share deal as likely to go through.

Analysts think the lack of a cash element could limit enthusiasm for the deal among Virgin Money shareholders if CYBG decides by the 18 June deadline to make a formal offer.

Some investors may feel it could take years for the operational benefits the deal is expected to generate to come through.Integrating systems used for three brands including Yorkshire Bank, would not be easy

CYBG has left itself leeway to include some cash in the mix if it decides to make a formal offer.

Employees of CYBG and Virgin Money may regard the prospect of them combining with concern.

Noting they were talking about creating a new national force in banking, the groups flagged the potential to make big cost savings through measures such as removing duplication. However, there is not much overlap between the branch networks.

Ministers may be wary about consolidation among challenger banks, which could mean the ranks of competitors to the big guns are thinned.