European Central Bank ( ECB) president Christine Lagarde said the merger was “instrumental for restoring orderly market conditions and ensuring financial stability” and said euro area banks were “resilient, with strong capital and liquidity positions”.

She said the ECB was “fully equipped to provide liquidity support” if needed.

UBS, Switzerland’s largest bank, agreed to buy Credit Suisse for a total consideration of 3bn francs (just over €3bn), the two lenders announced late last night.

The deal was pre-approved by Swiss regulators and does not require shareholder agreement.

Mr Kelleher said the merger, while “attractive” for UBS shareholders, was an “emergency rescue” that would limit UBS’s downside exposure.

The combination of the two businesses is expected to generate cost reductions of more than $8bn in four years, UBS said.

Credit Suisse said in a statement that UBS had “expressed its confidence that the employment of the staff of Credit Suisse will be continued”.

The Swiss National Bank (SNB) said the two lenders can access a government-backed loan of up to 100bn swiss francs (€101bn), on top of a €50bn SNB lifeline announced a few days ago.

The upheaval is likely to make for a dramatic trading session on global markets.

Shares in AIB, Bank of Ireland and Permanent TSB (PTSB), were already down between 1pc and 6pc at the end of last week, with PTSB – which is still majority state-owned – faring the worst.

Zurich-headquartered Credit Suisse was the first European casualty of a US banking rout that began with the collapse of California-based Silicon Valley Bank just over a week ago.

Stephen Kinsella, professor of economics at the University of Limerick, said yesterday that the situation was “very serious” and that further interest rate hikes “will stress” banks’ balance sheets.

Central banks in the US and the UK are weighing quarter-point rate hikes this week, following the ECB’s half-point hike last Thursday.

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