The Yorkshire and the Norwich and Peterborough building societies are engaged in serious merger discussions, it has emerged.

The Yorkshire issued a statement saying these discussions are 'subject to completion of full and satisfactory due diligence, which will take a number of weeks to complete, and the satisfaction of certain pre-conditions'.

The statement added: 'Yorkshire has consistently said that it would consider mergers with smaller societies if these can be completed on a basis that would be in the long term interests of its current and future members.

'The society has demonstrated resilience throughout the recession and has maintained one of the strongest financial positions of any major UK lender, while continuing to deliver value and financial security to its members. During this period it has shown its ability to successfully carry out large and complex mergers.'

The news follows speculation that Norwich-based Virgin Money was in talks to buy the N&P.

In December, N&P bosses confirmed that it had received a number of 'expressions of interest' from parties in connection with a possible merger or injection of new capital.

The N&P has been left reeling by the collapse of the Keydata Investment firm that threatened to leave hundreds of elderly investors out of pocket.