Bank of Ireland refused to pay more than £200 million (€254 million) for the State-owned ICC Bank, which Government advisers had indicated was worth more than £300 million, The Irish Times has learned.

While the bank did not enter a formal final bid of £200 million to the Minister for Finance, it had indicated this was its best offer based on a due diligence examination of ICC's business.

The Government's corporate advisers on the sale, ABN Amro, engaged in protracted negotiations with the bank about its bid over the last few months, which culminated in Mr McCreevy requesting Bank of Ireland to raise its bid.

The bank refused to submit a higher tender and the sale process collapsed on Monday.

Industry sources suggested Bank of Ireland had submitted the highest indicative bid for ICC, believed to be about £350 million, when it was put on the market in July. But it is believed to have scaled back this bid after it emerged it was the only bidder.

Bank of Ireland had always been considered as the front runner to buy the State-owned bank which specialises in the small to medium business sector. Group chief executive Mr Maurice Keane had indicated the bank would retain the ICC brand and run it as a separate subsidiary if it was successful.

Some sources have suggested Bank of Ireland's low bid, and indeed the low level of bidding interest generally for ICC, reflected the onerous conditions attached to the sale. There are also suggestions that at the final due diligence, Bank of Ireland decided that aspects of ICC's business were not as close a fit with its existing business as was previously thought.

As well as bidding for ICC, just last month Bank of Ireland initiated a joint bid, estimated at more than £2 billion, with Irish Life & Permanent for Ulster Bank. Bank of Ireland is interested in buying Ulster's Northern Ireland-based retail operations with Irish Life & Permanent keen to secure its Republic of Ireland operations.

That bid is still being evaluated by Ulster's parent, NatWest and may also have influenced Bank of Ireland's thinking on ICC.

Mr McCreevy has blamed the changes in the Irish banking sector since ICC was put up for sale for the collapse of the tender process. While the sale had been well flagged, many financial institutions interested in acquiring that business were forced to review their strategy to reflect other potential acquisitions.

NatWest's decision to sell off Ulster Bank would have forced all of the Irish and UK financial institutions to consider its potential and may have diverted interest from ICC. One of the 10 institutions which initially indicated an interest in ICC, Bank of Scotland, for instance, never followed through in making a bid. Shortly after it initiated a hostile bid for NatWest.

The decision by its Scottish rival, Royal Bank of Scotland to mount a counter bid for NatWest, has also altered the opportunities for the various banks with it indicated that it would retain Ulster Bank if its bid succeeds. In that situation, Bank of Scotland could once more consider ICC.

ICC's board and management are preparing an alternative strategy for the bank with most analysts suggesting the future ownership of ICC Bank may not be finalised for some time yet.