British bank Lloyds TSB has reached as agreement to take over domestic rival HBOS Plc in an all-share deal, according to reports tonight.
The BBC has reported that both companies' boards have agreed a deal worth 232 pence per HBOS share.
It emerged earlier that Lloyds TSB was in advanced talks to buy HBOS, to create a £28 billion sterling ($50 billion) mortgage giant.
News of the talks surfaced after shares in HBOS, Britain's biggest home loan lender, were battered for a sixth consecutive day amid mounting fears about its funding position.
A deal would mark another chapter in a dramatic shake-up of the global financial landscape as firms with weaker balance sheets or funding strains are swallowed by stronger rivals.
A brief statement from HBOS confirmed the talks but did not contain any further details.
According to this evening's reports, further details of the deal will emerge tomorrow.
In an earlier report, the BBC said the British government would overrule any concerns about competition issues. British prime minister Gordon Brown was involved in negotiating the deal, according to the report.
A spokesman for the prime minister declined to comment on the HBOS and Lloyds talks but said: "He speaks to a very wide range of senior business and financial leaders, as you would expect.
"The chancellor made it clear yesterday that we will do whatever is appropriate to maintain the integrity of the UK financial system," he added.
Lloyds is Britain's fifth-biggest bank and HBOS is the sixth-biggest, but they rank fourth and first for mortgage lending and would have a 28 per cent share of home loans.
A deal could be attractive for Lloyds as it could cut costs, increase market shares and lift margins to offset the prospect of higher bad debts as the economy worsens, but this would depend on the terms of any deal, analysts said.
The talks are being encouraged by both the Treasury and regulator the Financial Services Authority, the BBC said.
HBOS has come under mounting pressure as it is more reliant on wholesale markets to fund its business than other UK banks, and the cost of borrowing funds in the interbank market continues to rise as the credit crunch has made banks reluctant to lend to each other.
That raised the risk that savers with HBOS could withdraw funds and create a bigger problem, analysts said.
There were no signs of a rush to withdraw today and some HBOS customers welcomed the takeover talks.
HBOS and the FSA sought to soothe concerns about HBOS's funding position before the news of the talks broke.
"We are satisfied that HBOS is a well capitalised bank that continues to fund its business in a satisfactory way," the FSA said.
A spokesman for HBOS said the bank was "a strong financial institution with significant capital resources at its disposal" and it continued to fund itself in the wholesale markets.