Anglo Irish Bank is emerging as the most likely business banking component to the proposed "third force" financial institution as previous contenders for the role – such as Ulster Bank and Bank of Scotland Ireland (BOSI) – are dropping out of the picture, market sources said.

The nationalised bank, which until 2008 was a highly aggressive property development lender, is being promoted as the missing element in the third force by figures in the financial industry and the Department of Finance, it is understood.

Executives at Bank of Scotland Ireland, which last week announced the closure of its Halifax retail bank with the loss of 750 jobs, had wanted to participate in a consolidation of smaller players in the sector, but that option never came to fruition.

According to one report, possible third-force shareholder Irish Life & Permanent had been in talks with the Lloyds-owned bank, but the contact came to nothing.

Taoiseach Brian Cowen said last week BOSI would continue as "an independent entity", effectively ruling it out of the government's plans for dealing with guaranteed banks EBS, Irish Nationwide and Permanent TSB.

Ulster Bank has also effectively ruled itself out of participating in any third force, as executives there believe the bank has the scale and capacity to operate as a third force on its own, informed sources told the Sunday Tribune.

The rough outline being considered for Anglo involves grafting its healthy commercial lending infrastructure on a merged EBS and Irish Nationwide – possibly with Permanent TSB included. Analysts believe that once Anglo is relieved of €28bn in Nama loans and sells its viable US and UK portfolios, it will have a very strong deposit base relative to assets, which would help solve the liquidity problems which are said to be constraining SME lending in the market.

Late last year Anglo turned down a number of speculative approaches from private equity firms looking to buy the lender's €10bn US property loan book at deeply discounted prices.

Chief executive Mike Aynsley is understood to be waiting for EU approval of the bank's business plan before executing any large-scale restructuring.

Since taking over the Anglo chief executive position in September, Aynsley has put together a business plan for the EU involving a split into "good" and "bad" banks, announced a staff and cost reduction programme and replaced much of the senior management, indicating the bank is gearing up for survival rather than just wind down.

However, other third-force options remain on the table, according to an executive involved in the negotiations. The possibility still exists for EBS and Irish Nationwide to continue as savings and loan specialists, leaving the field open for a specialist SME lender to fill the business banking void in the market, sources said.