The Co-operative Group has dropped its planned acquisition of 632 Lloyds Bank branches.

The society said it had decided the deal, dubbed project Verde, “was not in the best interests of the Group’s members to proceed further at this time”.

“Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk,” said CEO Peter Marks.

“The Verde transaction offered a significant opportunity to The Co-operative and the sector as a whole as it would have created a major challenger bank,” he added.

“It was right therefore, for us to explore it in the detailed way we have.”

The Co-op agreed to purchase the branches last year and has been working on the deal for some time.

António Horta-Osório, Chief Executive of Lloyds Banking Group said: “We are disappointed that The Co-operative Group is unable to complete this transaction. However, we are well advanced in our plans to bring the Verde business to the UK High Street during the summer through the TSB Bank, and will now proceed with the option to IPO the business.”