ZURICH (Reuters) - Swiss regulatory concerns scuppered talks between private banks Julius Baer and EFG International over a potential tie-up worth some 15 billion Swiss francs ($17 billion), two sources with knowledge of the matter told Reuters.

The two banks held talks in early 2024 and reached an agreement in principle, the sources said on Tuesday, speaking on condition of anonymity because of the sensitivity of the matter.

But financial regulator FINMA signalled that it had concerns about the potential deal, the sources said. It is still reviewing Julius Baer's risk controls after the bank suffered losses tied to loans to failed property firm Signa, one added.

Talks between Julius Baer and EFG then stopped and have not resumed, the two sources said.

FINMA, EFG and Julius Baer declined to comment.

The number of Swiss private banks has been shrinking as smaller players seek scale, and Julius Baer and EFG had also engaged in talks about a tie-up in previous years.

Signa's collapse in late 2023 rocked Julius Baer after it had lent heavily to the firm run by Austrian magnate Rene Benko.

Julius Baer ousted its CEO in February after it was forced to write down 586 million Swiss francs in losses on loans to Signa, and said it would exit its private debt business.

EFG has a market value of 3.9 billion francs against Julius Baer's 10.6 billion francs. The banks had considered EFG CEO Giorgio Pradelli as a potential head of a combined entity, Reuters reported last month

Julius Baer is still looking for a permanent CEO.

Analysts say a takeover today might make financial sense but strategically it is a tough sell, pointing to risks around integration, asset attrition and cultural differences.

Keefe, Bruyette & Woods analysts said in May that the timing of the talks was "questionable" given the regulatory scrutiny over Signa.

FINMA's review of Julius Baer comes at a critical time for the regulator, which was heavily criticised for its handling of the collapse of Credit Suisse. The regulator wants more powers to improve supervision and safeguard Swiss financial stability.

Stefan Walter, a former ECB official, has been leading FINMA since April after the previous head quit in September.

($1 = 0.8834 Swiss francs)