Santander will take over the £20bn savings business and branch network of troubled Bradford & Bingley, the Spanish banking giant has said.Treasury officials and bankers are putting the final touches to the deal, says BBC business editor Robert Peston.
A formal announcement is expected early on Monday morning, which will also confirm that B&B's £50bn in mortgages and loans is being nationalised.
Santander already owns Abbey, and recently bought Alliance & Leicester.
Worldwide problems
The move comes as financial institutions throughout the world face intense pressure from the credit crunch.
In the United States' largest bank failure, Washington Mutual was taken over by regulators and sold on to JPMorgan Chase
Lehman Brothers collapsed, Merrill Lynch sought refuge in a takeover by Bank of America and Morgan Stanley secured a large capital injection from a Japanese rival
US insurance giant AIG had to be bailed out by the US government, which in effect took an 80% stake in the firm
The governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest £9bn in huge financial services group Fortis, in effect nationalising it.
The Treasury has been expected to sell B&B's 200 branches but the bank has told savers that deposits are safe and Treasury minister Yvette Cooper said they would be "properly protected".
Ms Cooper told the BBC One Politics Show that negotiations were still ongoing, but the chancellor would make a statement before the markets opened on Monday.
"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."
Loans nationalised
B&B's share price plummeted to a record low last week. Bank spokesman Tony McGarahan said: "We can assure customers that their deposits are safe with Bradford and Bingley."
The British Bankers Association is unhappy at some aspects of the plan.
Association chief executive Angela Knight told BBC Five Live she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.
"The financial services industry underpins, not just the UK economy, but indeed all of us individually, and there can be times where authorities have to step in," she said.
She said it was a "very great shame that it's got to this place".
Conservative leader David Cameron said nationalisation should be a last resort. He told the BBC the Tories would not sign "blank cheques" for the taxpayer to bail out failing institutions.
But John McFall, chairman of the Commons Treasury Select Committee, told the BBC: "We have to make a decision - do we take it [B&B] into the state, or do we play Russian roulette with people's jobs and homes?
"I know what I'd prefer."
B&B's share price has plummeted and it has announced plans to cut 370 jobs due to a downturn in the mortgage market.
A year ago its share price was 300 pence, but has now sunk to 20 pence.
The bank will be nationalised using special legislation the Treasury put through when it took Northern Rock into public ownership earlier this year. B&B's £50bn of loans, including £41bn of home mortgages, will not be sold and will be nationalised on a long-term basis. The mortgages may be given to the nationalised Northern Rock to manage.
"The Bradford and Bingley mortgage book is a lower quality book of mortgages, it is a worse asset than Northern Rock," said Charlie Parker, of Citywire.
"It has experienced double the arrears rates of other lenders."
The bank experienced significant withdrawals of cash from its branches and online bank on Saturday amid customer concerns about its situation.
'Less vulnerable
Robert Peston said the B&B was getting "perilously close to a funding crisis... there had to be a solution".
But its nationalisation "should be the last of the banking accidents here".
He said there was a class of bank that had relied heavily on the mortgage market - Northern Rock, HBOS, and B&B - and which had now either been nationalised or taken over.
"The remaining banks have much broader bases, they are less vulnerable," he added.
However, B&B's shareholders and holders of its subordinated debt may lose out.
Alistair Milne, a banking expert at Cass Business School in London, said an independent adjudicator might be appointed to decide what the outcome for shareholders should be.
However, one year after Northern Rock collapsed small shareholders there are waiting to see if their shares are worth anything at all.
A team of accountants appointed by the Treasury is making calculations to determine what shareholders in the now-nationalised Rock should receive.
The move comes as financial institutions throughout the world face intense pressure from the credit crunch.
In the United States' largest bank failure, Washington Mutual was taken over by regulators and sold on to JPMorgan Chase
Lehman Brothers collapsed, Merrill Lynch sought refuge in a takeover by Bank of America and Morgan Stanley secured a large capital injection from a Japanese rival
US insurance giant AIG had to be bailed out by the US government, which in effect took an 80% stake in the firm
The governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest £9bn in huge financial services group Fortis, in effect nationalising it.
The Treasury has been expected to sell B&B's 200 branches but the bank has told savers that deposits are safe and Treasury minister Yvette Cooper said they would be "properly protected".
Ms Cooper told the BBC One Politics Show that negotiations were still ongoing, but the chancellor would make a statement before the markets opened on Monday.
"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."
Loans nationalised
B&B's share price plummeted to a record low last week. Bank spokesman Tony McGarahan said: "We can assure customers that their deposits are safe with Bradford and Bingley."
The British Bankers Association is unhappy at some aspects of the plan.
Association chief executive Angela Knight told BBC Five Live she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.
"The financial services industry underpins, not just the UK economy, but indeed all of us individually, and there can be times where authorities have to step in," she said.
She said it was a "very great shame that it's got to this place".
Conservative leader David Cameron said nationalisation should be a last resort. He told the BBC the Tories would not sign "blank cheques" for the taxpayer to bail out failing institutions.
But John McFall, chairman of the Commons Treasury Select Committee, told the BBC: "We have to make a decision - do we take it [B&B] into the state, or do we play Russian roulette with people's jobs and homes?
"I know what I'd prefer."
B&B's share price has plummeted and it has announced plans to cut 370 jobs due to a downturn in the mortgage market.
A year ago its share price was 300 pence, but has now sunk to 20 pence.
The bank will be nationalised using special legislation the Treasury put through when it took Northern Rock into public ownership earlier this year. B&B's £50bn of loans, including £41bn of home mortgages, will not be sold and will be nationalised on a long-term basis. The mortgages may be given to the nationalised Northern Rock to manage.
"The Bradford and Bingley mortgage book is a lower quality book of mortgages, it is a worse asset than Northern Rock," said Charlie Parker, of Citywire.
"It has experienced double the arrears rates of other lenders."
The bank experienced significant withdrawals of cash from its branches and online bank on Saturday amid customer concerns about its situation.
'Less vulnerable
Robert Peston said the B&B was getting "perilously close to a funding crisis... there had to be a solution".
But its nationalisation "should be the last of the banking accidents here".
He said there was a class of bank that had relied heavily on the mortgage market - Northern Rock, HBOS, and B&B - and which had now either been nationalised or taken over.
"The remaining banks have much broader bases, they are less vulnerable," he added.
However, B&B's shareholders and holders of its subordinated debt may lose out.
Alistair Milne, a banking expert at Cass Business School in London, said an independent adjudicator might be appointed to decide what the outcome for shareholders should be.
However, one year after Northern Rock collapsed small shareholders there are waiting to see if their shares are worth anything at all.
A team of accountants appointed by the Treasury is making calculations to determine what shareholders in the now-nationalised Rock should receive.
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