The central bank said it supported the merger and that it expected more.

In the boldest move, three banks - Oneximbank, Menatep and Most Bank - said they would first form a holding company in which each would put 51% of their shares.

The merger should be completed by the end of the year.

And shortly afterwards, Russian television announced that the country's second largest bank - Inkombank - was to merge with the National Reserve Bank to form a rival to the country's biggest bank, Sberbank.

There has been speculation that the new group will also swallow up Rossiisky Kredit and Avtobank.

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"The banks are convinced that their actions in merging will lead to the formation of the leading Russian financial organisation, which will become a model of world standards in Russia," the three banks said in a statement.

The merger was announced as the Russian banking system is in the midst of a crisis, with many of the smaller banks and maybe some of the bigger ones expected to fold.

Last week the twelve biggest banks announced a plan to support each other through inter-bank lending.

The crisis has caused some banks to default on repayments of debt to foreign creditors, forcing the government last week to declare a 90-day moratorium on debt repayments.

Menatep was one of the first banks to default on a major foreign loan earlier this month, while Inkombank is believed to have significant foreign debts..

The collapse in the rouble has piled yet more pressure on the already troubled banking sector.

Basis for stability

The central bank said it supported the three-way merger.

Bank spokeswoman, Irina Yasina said. "The formation of such an institution, with huge capital, forms the basis for stable and long-term growth of the banking system.

"I think this will not be the last merger."

The holding company is to co-ordinate the work of each bank and work on the merger.

Each bank is to control one third of the shares of the holding company.

The size of each bank's stake in the final merged bank will be calculated according to the worth of their shares as established by an international audit.

Each of the banks will have three representatives on the nine-member board of the new holding company.

It has already been agreed that Uneximbank president Mikhail Prokhorov will be the head of the bank while the chairman will be named by the two other banks.

The statement said the banks planned to ask foreign banks and companies to advise on the merger.

Oligarchy in Charge

The banks which are merging form part of the major business groups controlled by the "magnificant seven" who constitute the financial oligarchy of Russia.

Most-bank is part of the Media Most group controlled by Vladimir Gusinsky who models himself on Rupert Murdoch. It owns the major national televison station NTV, Moscow Echo readio, and daily newspaper Sevodnya.

Oneximbank is part of Vladimir Potanin's $32bn Interros financial empire which includes gas and oil, metals, and real estate. Mr Potanin, who served as Deputy Prime Minister in 1996, was a former trade official in the Soviet era. His group owns 85% of oil company Sidanko and 51% of mining company Norilsk Nickel, as well as newspapers Izvestia and Komsomolskaya Pravda. His personal wealth is estimated at between $1.5bn and $3bn.

Menatep Bank is 40% owned by Mikhail Khodorkovsky, who also controls the Rosprom holding company. His interests include Yukos, Russia's second largest oil company, which he bought for $168m, food processing, textiles, construction, metals, chemicals, and shipbuilding. His personal wealth is estimated at $2.2bn. The bank was originally a trading company, which profited from selling sugar, grain, oil and foreign currency.

Inkombank Bank's chairman in Vladimir Vinogradov. The company also has interests in metals and oil. He is a former engineer who became chief executive of the Presidential council for Private Enterprise in 1992.