British Chancellor Alistair Darling has defended his decision to nationalise struggling lender Northern Rock.
He told the House of Commons that both private sector proposals to rescue the bank - from Virgin and a management team - involved a risk to taxpayers and a subsidy from the Treasury.
Mr Darling also said the new Northern Rock board would operate 'at arm's length' from the British government.
Shares in the bank were suspended as it said it would be taken into public ownership in the coming days.
Northern Rock's share price has never recovered since it was forced to request emergency funding from the Bank of England in September when thousands of account holders flocked to take their money out of the mortgage lender.
Northern Rock shares were suspended at 90p, giving the bank a market capitalisation of £379m sterling. In contrast, at the same stage of 2007, the bank was worth around £5.3 billion.
'The board of Northern Rock notes the government's announcement of its intention to take the company into temporary public ownership by legislation under which it will acquire all of the shares in the company,' the bank said in a statement to the London Stock Exchange.
'The government expects temporary public ownership to become effective within the next few days,' it added.
The British government revealed yesterday that it would introduce emergency legislation today to nationalise Northern Rock.
Commercial banks have tightened up their lending criteria in the wake of a credit squeeze which has severely shaken world financial markets since August 2007. Investors and banks alike remain uneasy about the exposure of commercial financial institutions to the sub-prime housing crisis in the US.
Northern Rock, based in the north-east city of Newcastle, is Britain's worst victim of the squeeze on global credit. It has since borrowed an estimated £26 billion from the Bank of England, although media reports have put the actual liability to taxpayers at £55 billion or higher.
Meanwhile, the European Commission is likely to force Northern Rock to downsize in compensation for receiving government aid, British and European Union officials said today.
Such a step is standard treatment for troubled companies - publicly or privately owned - that obtain significant government aid for restructuring.
'The conditions under which Northern Rock will do business have to be approved under the (EU's) state aid rules, which are deliberately designed to stop there being unfair competition from something that has the state standing behind it,' British finance minister Alistair Darling said.
Darling said he understood the concerns of rival banks. The EU rules are designed to deal with the concerns of competitors who see government aid going to a rival.
Northern Rock faces a March 17 deadline to pay back about £26 billion of emergency aid authorised by the European Commission for no more than six months. But it will be unable to do so.
The British government as a result must ask the EU executive to convert that emergency aid into restructuring aid, which is given only under stringent conditions.
