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The merged entity will have around 3,000 branches, bigger than HSBC and industry giant Royal Bank of Scotland.
The prime minister, Gordon Brown, approved the deal saying it was necessary to ensure stability in the UK financial system, reports the Press Association.
Speculation has emerged that up 40,000 jobs could go in an attempt to make cost savings.
Lloyds TSB and HBOS currently employ around 145,000 staff between them
Banking analyst James Hamilton warned bank customers they could see less choice on the financial market following the merger.
He commented: "We expect the deal to dramatically reduce competition for almost every product line in UK financial services so increasing the long-term profitability."
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