Irish Life and Permanent (IL&P) is expected to be the next Irish financial institution to become part of a wave of consolidation set to sweep Irish banking once the deal between Anglo Irish Bank and Irish Nationwide is officially consummated.

Senior executives from rival banks to IL&P have told the Sunday Tribune that the mortgage lender may be open to an offer because of its reliance on the wholesale markets and a falling demand for its investment products.

Irish brokers have already pondered a possible offer from German company Allianz, one of Europe's largest insurers, for the group's life and investment business, while other sources have suggested Bank of Ireland could be in the frame to buy Permanent TSB, the banking arm. IL&P declined to comment on speculation.

If a sale of IL&P takes place, it may also be followed by the sale of the Irish business of HBOS – Halifax and Bank of Scotland (Ireland). These were acquired last week by Lloyds TSB as part of a UK buyout, but there is a strong possibility they will ultimately be sold, with AIB likely to be among those taking an interest if it can come up with the capital.

"Every bank is looking at every opportunity," said one banking source. "The whole market, not just IL&P, will look different six months from now."

Exposure to wholesale funding has been identified by senior bankers as a significant risk facing the industry in Ireland. IL&P's banking division, like Irish Nationwide, is one of the most heavily exposed institutions in that context.

Irish bank executives contacted by the Sunday Tribune indicated IL&P chief Denis Casey was very likely to be considering possible merger candidates, especially those with a strong deposit base. In the meantime, IL&P can rely on European Central Bank (ECB) funding.

Irish banks are very keen to explore deals that will bring stability to a sector badly shaken by the recent wave of failures, bail-outs and mergers internationally.

Senior bank sources told the Sunday Tribune that Irish Nationwide's funding problems were so bad that it had come to be seen as a source of systemic risk in Irish banking. The building society's business model – borrowing on the wholesale markets to fund new lending – had become unviable due to the credit crunch and the possibility that it could become insolvent was shadowing other Irish financial institutions, making funding harder to come by and driving up the risk premium they would have to pay for it.

One source described it as a "pimple which needed to be lanced".

According to people familiar with the situation, a deal to take over the ailing mutual will be concluded only if Anglo can get funding and risk support from both government and the rest of the Irish banking industry.

It is understood this would involve some kind of guarantee against bad debts and losses arising from Irish Nationwide's loan book, which is heavily weighted towards the distressed area of Irish and UK commercial property.