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Yorkshire Building Society has announced it is to take over its Barnsley counterpart.

Barnsley Building Society, the country's 34th lender, said it wanted to protect itself against losing £10 million worth of deposits held in Icelandic banks.

The Yorkshire, which said the rescue deal was "extremely positive" for both parties, said it intended to pursue the recovery of deposits with the Icelandic banks.

With assets of about £20 billion, the Yorkshire is third-largest building society in the UK. It has admitted that standard variable rates could change following the merger.

The merged society will be known as Yorkshire Building Society but accounts held with Barnsley Building Society will continue to be branded as such.

"This merger is a further step in demonstrating the strength of the mutual sector in the UK, with complete certainty to customers maintained at no cost to the taxpayer," said Iain Cornish, chief executive of Yorkshire Building Society.

Steve Mitchell, acting chief executive of Barnsley Building Society, said the nationalisation of banks in Iceland was "beyond anticipation".

"The society's reserves are sufficient to absorb our potential losses to Icelandic banks, but the board considered that their reduced level would restrict its ability to provide members with the security and benefits associated with mutuality," Mr Mitchell explained.

"In response, the board has made a very positive decision to lead the society into a more secure future as part of a larger society, through merger with Yorkshire Building Society."