The Britannia Building Society is to merge with Co-operative Financial Services (CFS)

Some branches may close if they are too close to each other but the two mutuals have promised there will be no compulsory redundancies. The new business will be a subsidiary of
The Co-operative Group and Britannia members will become Co-op members.

The merger will only be possible if a new law allowing mergers between mutuals is passed in March.

The Building Societies (Funding) and Mutual Societies (Transfers) Act, known as the Butterfill Bill after its sponsor Sir John Butterfill MP, would give building societies greater freedom to merge with other companies as well as changing the current restrictions on the way they are allowed to raise money. The deal would also have to be approved by members.

In a statement, the two mutuals said they would continue to have a significant presence both in Manchester, where CFS is based, and in Leek in Staffordshire where Britannia is based.

They say the customer-owned "super-mutual" will be an ethical alternative to shareholder-owned banks. "Owing to the damage done by the credit crunch, people have been crying out for a new way of doing business with a financial organisation of substance that truly has their interests at heart," said CFS chief executive David Anderson. "This merger will create that organisation and we'd hope to attract many thousands of new customers as a result." The merged business would have nine million customers, more than 12,000 employees, 300 branches and 20 corporate banking centres. In towns in which the merged group ends up with two or more branches, some of them may close, but there has been a promise that there will be no compulsory redundancies.