Jeremy Warner: How many more will have to be saved?

Such is now the scale of the global banking crisis that news that once would have been counted as sensational – the nationalisation of Bradford & Bingley – now barely passes the "so what" test.

Against the plethora of previously "inconceivable" events – the collapse of Lehman Brothers, the nationalisation of the US's two biggest mortgage organisations and of the world's largest insurer, AIG, the sanctioning by the British Government of the "rescue" takeover bid by Lloyds TSB of HBOS to create a company with 40 per cent of the UK banking market, and so on – this one seems almost small beer. B & B was the always the "also ran" of the independently quoted former building societies. What's more, it has a high exposure to buy-to-let and other forms of "riskier" mortgage lending, so ever since Northern Rock ran into problems more than a year ago it has been obvious B & B would struggle to survive.

The recent intensification of the banking crisis, with banks again refusing to lend to one another and depositors withdrawing their money from any bank that looks remotely suspect, has sealed the company's fate.

Desperate to avoid another £50bn of mortgage assets coming onto its books, the Treasury and Financial Services Authority has been searching for buyers, but such is the febrile atmosphere of mistrust in credit markets that no rival bank could be persuaded to take on responsibility for additional funding of this sort without a government guarantee. Bankers are finding it tough enough to fund their own lending books, let alone taking on responsibility for someone else's.

Nationalisation of the assets together with sale of the deposits and branch network became the only way of preventing an insolvency in which depositors would have lost large amounts of money.

With nationalisation of B & B goes the last of the converted building societies floated on the stock exchange in an orgy of de-mutualisation windfalls in the mid to late 1990s. Northern Rock too has been nationalised, Abbey National and Alliance & Leicester taken over by Santander, and assuming the deal goes through, HBOS, the former Halifax and Leeds Permanent building societies, has been parked with Lloyds TSB. Others are already part of larger banks.

The demutualisation "experiment" – designed to release capital to members and give these organisations the access to international money markets that would allow them to expand – has ended up a miserable catastrophe. Worse, by stoking the explosion in mortgage lending, the process of demutualisation must be judged one of the main causes of the housing bubble and the now painful correction.

In all cases, these once conservatively run mortgage societies seem to have been operating an unsafe business model, with investment in dodgy financial instruments and rapid growth in mortgage books funded not by ordinary retail deposits, but by the international money markets. Once this sort of funding dried up, they were in trouble.

Members still holding their demutualisation shares will have lost all or most of their "windfalls". Bradford & Bingley was particularly big in "buy-to-let" mortgages and high-risk "self-certified" mortgages, under which the mortgage holder vouched for his own credit worthiness. Access to these products will now become much more restrictive, as it is hard to imagine the Government will find supporting them a good use of taxpayers' money. Nationalisation will put the B & B mortgage book into run-off, which means B & B mortgage holders will be forced to pay more once their existing deals run out.

Details of the nationalisation are still unclear, but shareholders and rival bankers who only two months ago were press ganged by the Financial Services Authority into providing B & B with an additional £400m of equity capital stand to lose the lot.

As one banker put it last night: "Don't expect us to put up anything for other banks after this. It's all very well to make shareholders take the punishment for bad lending, while depositors are protected, but we were trying to help." The decision to nationalise £50bn of mortgage lending is not so dissimilar to what is being done in the US, with the $700bn Wall Street bailout plan. This has proved highly controversial, though at the time of writing it looked as if Congress would swallow its scruples and sanction the scheme in modified form.

The key difference is that in the US, the authorities propose to pay for the banks' bad loans in an attempt to get them off Wall Street's books and restore confidence in the banking system. Back here in Britain, the B & B mortgage book is being acquired for free. In time, therefore, the taxpayer ought to get most, if not all his money back and may even make a profit on the exercise.

In the meantime, it further undermines public finances, adding another 3 percentage points to public debt as a proportion of economic output. The Government will try to present the nationalisation as another act of "decisiveness" which demonstrates it is on top of the crisis. Yet it comes at an extreme cost, and increasingly people are asking where it will end. Are all banks to end up in public ownership?

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