Caja Madrid and Bancaja said Thursday that they had reached an initial agreement that would create the largest savings bank in Spain

Caja Madrid and Bancaja said Thursday that they had reached an initial agreement that would create the largest savings bank in Spain as the country’s financial sector continues to consolidate under burgeoning debt worries.

The two banks — along with five smaller cajas — may combine under a deal called a “fusión fría,” or “cold merger,” which allows them to maintain some independence while pooling liquidity as a buffer against any one lender’s woes.

The news came the same day that labor unions and employers broke down, forcing the government to draw up its own labor law overhaul, which is set to be presented next week.

The announcement of a possible merger of Caja Madrid and Bancaja had marked, yet opposite, effects on the cost of insuring against default at the two lenders.

According to Markit data, the cost of credit-default swaps for Bancaja debt fell 122 basis points to stand at 534 basis points on Friday morning, while for Caja Madrid it rose 35 basis points to 459 — a clear indication of which bank is seeking refuge in the deal, and which is offering it.