Britain nationalised Bradford & Bingley today, making the buy-to-let mortgage lender the second bank to be taken into public ownership this year as a deepening financial crisis claims more victims around the world.
After intense weekend talks failed to find an outright buyer for Britain's ninth-biggest mortgage lender, the Treasury said it would take over B&B's £50 billion sterling mortgage portfolio and sell its deposits and branches to Spanish bank Santander.
The B&B brand will remain for now but the accounts will transfer to Abbey, a British bank bought by Santander in 2004.
'To pretend that somehow there was some other solution, unnamed, unspecified - it seems to me to be clutching at straws. You needed to take decisive action. That's what we've done,' UK finance minister Alistair Darling said.
Earlier this month, the government brokered a rescue deal for the country's biggest mortgage lender HBOS and also sanctioned laws curbing stock market speculation.
B&B, with its heavy exposure to Britain's slumping housing market, is one of the latest victims of a global banking crisis that has felled some of the world's largest financial institutions in the last few weeks.
Benelux financial group Fortis also underwent a part-nationalisation over the weekend. In the US, the administration is putting together a $700 billion bailout package to buy up banks' toxic assets to prevent more failures.
Santander is paying some £400m for B&B's 200 branches and deposit portfolio while the government will take over the mortgage assets.
While the public takeover puts even more risky assets on to the UK government's balance sheet only seven months after the nationalisation of Northern Rock bank, which had the same funding model as B&B, Darling said the risk would be borne by the banking industry.
The Treasury said the Financial Services Compensation Scheme, which is paid for by the banks, was triggered on Saturday after B&B was found to be no longer able to meet its funding obligations.
The scheme had to pay out £14 billion to enable B&B's retail deposits be transferred to Abbey Santander and the Treasury has fronted that money. But it will have to be repaid by banks if B&B's remaining assets fall short.
The B&B deal further builds Santander's influence in the British banking market after it agreed to buy another mortgage lender, Alliance & Leicester, in July.
The Treasury said yesterday that its priority was to protect savers and provide financial stability to the British banking system.
The Association of British Insurers urged the government to maximise value from the run-down of B&B for shareholders and bondholders and said it should not be inevitable that all shareholder value is wiped out by nationalisation.
The UK Shareholders Association, representing private shareholders, said it opposed B&B's nationalisation on the grounds there may be better alternatives to protect shareholders' interests.
