Lloyds TSB negotiations to takeover HBOS have collapsed, according to Sky sources.
Lloyds had agreed to pay £9.8bn for its rival but there were fears it was paying too much because HBOS shares have plunged.
The Government had encouraged the takeover and had promised to change the law to allow the deal.
But Britain's biggest mortgage provider insists the buyout is still on.
"The deal remains in place and is on track," said Shane O'Riordain, general manager of group communications for HBOS.
He declined to comment on whether the terms of the deal could be renegotiated, following reports that both banks are expected to obtain capital from the government.