The impending sale of the Lloyds branches to Co-op is balanced on a knife-edge, as the Financial Services Authority is concerned about the impact on customers.

Whilst Lloyds must still offload its branches, the FSA is concerned about whether Co-op has the infrastructure to handle the transfer, without causing major disruption.

Lloyds has been forced to sell off 632 of its branches in order to release the stranglehold it currently has on the banking sector and to encourage more competition in the high street. However, it is not allowed to hang on to any of the customers attached to the branches being sold - they will automatically be transferred to the new owner.

Although there had been fierce competition for the acquisition, Co-op was announced as the successful buyer at the end of last year and the two banks are currently midway through negotiations to finalise the sale. But this may now be blocked by the regulator, if it does not believe that Co-op has the capacity to professionally integrate the new accounts.

The Co-op is still working on migrating Britannia Building Society accounts onto its network, a purchase which was completed back in 2009. Undoubtedly. Co-op would have preferred to complete the work with Britannia before starting the Lloyds acquisition, but this kind of delay would have lost them the bid.

But the bid for Lloyds branches has led to a delay in the transfer of the Britannia accounts and the August deadline now appears at risk. And it is this inability to handle a much smaller project which has led to the FSA's concerns about its capability to deal with the Lloyds transfer. without causing distress to the customers who are already being forced to undergo an upheaval in their banking arrangements.