Mortgage bank Bradford & Bingley is to be nationalised to prevent a run on the bank and its complete collapse, possibly spreading to other banks.
The Brown government took the decision after other banks refused to step in and take over the stricken bank.
The news came as officials from the Treasury and the Financial Services Authority (FSA) continued talks with executives from the bank.
B&B’s share price has collapsed – a year ago it was 300 pence a share, but has now sunk to 20 pence.
Chancellor Darling is to make a statement before the stock exchange opens this morning, as fears mounted that bad news from Bradford & Bingley, coupled with bad news from across the Atlantic, will provoke a share markets crash.
A Treasury spokesman said: ‘The Treasury, the FSA and the Bank of England are working with Bradford & Bingley to consider the implications for the business of the recent financial turmoil.’
Under the plan, the Treasury will sell B&B’s 200 branches and its savings business to a rival bank or banks, with possible buyers believed to include British bank Barclays, Spanish bank Santander and global giant HSBC.
The British government will nationalise B&B’s debt, which totals £50 billion pounds and includes home loans of £41bn.
One unnamed official said on Saturday night that ‘there is no way that they were going to get a private sale by the time the markets opened on Monday morning’.
Treasury secretary Yvette Cooper confirmed yesterday: ‘The chancellor is going to make a full statement on this before the markets open tomorrow morning.
‘The negotiations are still under way at the moment so there’s a limit to what I can say right now.
‘We’ve been very clear that the priority is to make sure that depositors, that ordinary savers, are properly protected, but also that we can support the financial stability of the banking system as a whole.’
But she would give no such guarantee to the bank’s over 3,000 workers, 370 of whom were sacked last week.
The British Bankers Association chief executive Angela Knight said she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.
In the US, US lawmakers said they had reached a ‘breakthrough’ in negotiations on the unprecedented $700 billion Wall Street bailout.
Senate Democratic Majority Leader Harry Reid attributed the fresh progress to a last-minute intervention by House Speaker Nancy Pelosi.
‘It’s been a very long day. Quite frankly, a long week. This has been extremely difficult but we can commit it to paper,’ Reid said.
‘We have made great progress,’ agreed Pelosi. ‘We have to get it committed to paper, so that we can completely, formally agree.’
US Treasury Secretary Henry Paulson, who also joined the talks in Congress, said: ‘We’ve made great progress toward a deal, which will work and will be effective in the marketplace, and, you know, effective for all Americans.’
The deal had to be finalised by yesterday night to be out before the Asian stock markets open to avoid a colossal share prices collapse.
All was not home and dry yesterday afternoon.
Senator Judd Gregg, a leading Republican negotiator and Republican Representative Roy Blunt, both said they would be looking at the final wording of the agreement and consulting with colleagues before giving their final approval.
However, White House spokesman Tony Fratto said President Bush and his aides were ‘very pleased with the progress’ made at the talks.
Democratic White House hopeful Barack Obama hailed the progress made, saying: ‘When taxpayers are asked to take such an extraordinary step because of the irresponsibility of a relative few, it is not a cause for celebration. But this step is necessary.’