Source: Flickr / Kevin Dooley.

In early March, I wrote an article about how Royal Bank of Scotland Group (NYSE:RBS) could be making a greater move into the Irish banking industry. But it looks like one Irish bank is looking to strike back on RBS' home turf.

Two banking systems, two banking messes
Financial stocks were among the worst hit by the 2008 recession with those in the United Kingdom and Ireland taking some of the largest damage. Bailing out its banking system with billions of pounds, the U.K. government took a 39% stake in Lloyds Banking Group (NYSE:LYG) and an 81% stake in Royal Bank of Scotland Group. With the British and European economies still in slow growth mode, conditions are still far from ideal but the worst of the damage appears to be in the past.

Ireland's financial system underwent a meltdown as a real estate and mortgage bubble burst. As the government raced to stabilize the system, it helped to recapitalize Bank of Ireland (NYSE: IRE), virtually nationalized Allied Irish Banks (OTC:AIBYY), and wound down many other major failing financial institutions.

Irish expansion
As RBS could be considering a merger between its Irish subsidiary, Ulster Bank, and another Irish rival, Bank of Ireland is looking to boost its presence in the U.K. The bank already has a major British presence by providing financial services through the Post Office, which has over 11,000 branches.

The Irish Times reports that Bank of Ireland is looking to offer a greater range of accounts and even expand its presence in the U.K. mortgage market. However, the newspaper also reports that the bank plans to avoid taking on large risks.

Changing gears
During times of financial panic, banks tend not to engage in new waves of expansion. In many cases, they actually shrink their empires by selling off assets and non-core subsidiaries. As the financial crisis struck Ireland, Bank of Ireland focused on raising capital to preserve solvency and avoid even greater amounts of share dilution.

This expansion move into Britain shows a shift at B of I to a model of restructuring and growth from the previous push for asset sales and capital raises.

Benefiting through growth
Investors have reason to be suspect about aggressive expansion by financial institutions. However, this move for a greater British presence looks like a good long-term move for Bank of Ireland. By developing a larger presence outside of Ireland, the bank is more diversified which should help protect the bank in the event of future trouble in the Irish economy.

Expanding in the U.K. should also help to counter potential market share losses if a third major Irish bank takes shape. With only Bank of Ireland and Allied Irish Banks as the nation's largest banks, a third bank could be on the way if rivals consolidate as Irish economic confidence improves.

Battle of the banks
After a major financial crisis threatened the solvency of British and Irish banks, both sides are once again looking for new opportunities. As RBS examines the potential to create a third major Irish bank through a merger, Bank of Ireland is looking to expand its presence in Britain.

Time will tell what market share each bank will acquire abroad but all banking investors should keep an eye on this situation for developments in international banking.