The state will have to write off the €625m in cash it has provided to EBS if a private equity bid for the building society is accepted this spring, according to a source familiar with the negotiations.

The plan, put forward by a consortium led by Dublin firm Cardinal Capital, proposes a fresh €600m capital injection to take the mortgage lender off the state's hands. But the bid does not reimburse the government for its special investment shares or leave the state with a stake in the institution.

The extra €600m provided by private equity would, however, bring EBS up to the 12% core capital level now required by the Central Bank. This would give the consortium full control of a recapitalised bank and sole claim to any upside from the deal.

A rival bid by Irish Life & Permanent would see the government adding the necessary €438m EBS needs to comply with the Central Bank's capital standards, but retaining a substantial stake in a new institution incorporating IL&P's banking arm, Permanent TSB. IL&P has to raise €925m of its own from shareholders and internal resources to separate Permanent TSB from the group structure. It is understood IL&P would retain a stake in the merged entity.

A tie-up of PTSB and EBS to create a 'third force' in Irish banking has been under consideration since 2008, when the government first began considering its options for consolidating the domestic banking sector.

The NTMA has not ruled out the possibility that the ultimate solution for EBS could involve both IL&P and the Cardinal consortium. Cardinal has reportedly drawn up plans to acquire PTSB at a later date if it succeeds in its bid for EBS. A senior source close to the discussions said this option had not been ruled out by any of the parties.

Although final bids were submitted last week, after a one-month postponement, the sales process is expected to continue for many months as the EU competition commissioner has to approve whichever bid the Dublin authorities prefer.

NTMA officials have expressed frustration at the pace of the EU approval process, as it means pricing included in the EBS bids is uncertain until Brussels makes up its mind.

Central Bank stress tests on capital and liquidity scheduled for March add another variable. The outcome of the exercise will determine by how much the six covered institutions, including EBS and IL&P, have to shrink their balance sheets in order to satisfy the requirements of the EU/IMF bailout terms.