Yvette Cooper, the treasury minister, said: "We are very clear that depositors and ordinary savers must be properly protected and they will be as part of the arrangements we will set out."

Negotiations ongoing

Cooper said that negotiations, between the Treasury, the Financial Services Authority industry watchdog and the Bank of England, were continuing and that Whitehall was aiming to ensure the financial stability of the banking system.

Tony McGarahan, a Bradford and Bingley spokesman, said: "We can assure customers that their deposits are safe with Bradford and Bingley."

Bradford and Bingley's shares have collapsed amid a property market downturn and falling markets engendered by mortgages given to insecure debtors in the US.

Fears were also raised that Bradford and Bingley could become another Northern Rock, the first UK bank to be nationalised after the funding crisis in February linked to the US home loans turmoil.


The BBC reported that Bradford and Bingley's mortgage book could be merged with Northern Rock.

The Treasury said that Barclays, the British bank, Spain's Santander and the worldwide HSBC were potential buyers of the bank's branches.

Bradford and Bingley specialises in mortgages for investors buying homes in order to rent them out.

The government negotiated the takeover of HBOS, the UK's largest home lender, by rival Lloyds TSB earlier this month.

Bradford & Bingley had announced on Thursday that 370 employees would lose their jobs in a bid to save $28m (£15m).

In August, the bank revealed net losses of $32m (£17m) for the first half of 2008, attributing them to "turbulence in the banking and housing sectors."