The Government has confirmed that Bradford & Bingley (B&B) is to become the second UK bank to be nationalised, with it’s savings portfolio being sold on to the Santander group.

Bradford & Bingleys share trading has been suspended this morning as the Treasury announced it’s intention to take over the mortgage lender. However, B&B branches would open normally this morning it added.

Under the scheme, the government will take control of the bank’s £50bn in mortgages and loans. £20bn savings business and branch network will be bought by rival Santander, the owner of Abbey.

Chancellor Alistair Darling said that the immediate cost to taxpayers would be a £4 billion payment to Abbey and a £14 billion government loan to the Financial Services Compensation Scheme. By doing this, if B&B’s remaining assets prove insufficient, the balance will ultimately be paid by the wider UK banking sector.

Bradford & Bingley got into difficulties due to the ongoing credit crunch, where the cost of funds it borrowed increased on the global wholesale money markets. Additionally, problems increased on the banks reliance on the buy-to-let market, which has an increase in bad debts as house prices have fallen.

On Saturday, the Financial Services Authority (FSA) decided that B&B was not strong enough to continue as a deposit-taking business after the recent financial turmoil undermined confidence in the bank.

A Treasury spokesperson announced this morning that: “The Government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers. For savers and borrowers of Bradford & Bingley it will be business as usual.”

Speaking on BBC Radio 4’s Today programme, Chancellor Alistair Darling outlined the governments plans: “Firstly the retail arm of the bank - that’s the savings and branches - they have been sold to Abbey, which is owned by Santander, which is one of Europe’s biggest banks, for just over £600 million. We are taking into public ownership, nationalising, using the special powers that we got earlier this year, the mortgages of the bank.

In relation to the savers, their savings are now with Santander/Abbey so they can be secure in that knowledge.

In relation to the mortgage business, what we have done is that we are taking that over, we will run it, those mortgages will get redeemed. In relation to the taxpayer, which is clearly very important, first of all when you transfer the savings, we need to transfer the cash that goes behind them - the Government will stand behind that in the first instance and, of course, as mortgages are redeemed and the assets are redeemed, we will be repaid.

If that isn’t sufficient, we will then make a claim on the wider banking industry, under the compensation scheme which already exists, so that if the assets are insufficient the balance will be collected from the banking industry.

Now we are not going do that immediately, because in the current climate that would be absolutely daft. But it does mean that in the future as things get better, if there is a shortfall, then we will collect it from the industry.

So what you are seeing is the Government taking quick, decisive action. We are standing behind the system to stabilise it because to let Bradford & Bingley go down would have destabilised the entire system especially given what’s going on in the world at the moment.”