The struggling Bradford & Bingley bank is set to be nationalised. An announcement is due today, it is being reported.
The BBC business editor Robert Peston reported that the B&B will be sold on almost immediately to another bank or banks.
There was no immediate comment last night from the Treasury - which had been locked in discussions all yesterday with the B&B and the Financial Services Authority.
However it was clear that the bank was set to become the latest victim of the global credit crunch which has paralysed the world financial system.
According to the BBC report, the Government will nationalise the B&B using the special legislation passed to take Northern Rock into public ownership earlier this year.
B&B's share price has tumbled in recent days, despite announcing plans to cut 370 jobs, due to the collapse of the mortgage market.
Potential buyers for the demutualised building society are said to include the Spanish bank, Santander, HSBC and Barclays.
However, according to the BBC report, B&B's £50 billion loan book - including £41 billion - will not be sold and will be nationalised on a long-term basis.
One option could be for the mortgages to be passed to the nationalised Northern Rock to manage.
One source involved in the negotiations said last night: "There were several options being discussed. The banks were talking.
"What appears to have happened is that there is no way that they were going to get a private sale by the time the markets opened on Monday morning, but there was enough interest to keep talking."
B&B spokesman Tony McGarahan said that an announcement would be made before the Stock Market opened on Monday.
"We can assure customers that their deposits are safe with Bradford & Bingley," he said.
A spokesman for the Treasury said: "The Treasury, the FSA and the Bank of England are working with Bradford & Bingley to consider the implications for the business of the recent financial turmoil."
Liberal Democrat treasury spokesman Vince Cable said the bank's problems were the result of a "collapsing housing bubble built on a toxic mix of buy-to-let speculation and self-certified mortgages".
Calling for a full, independent audit of B&B's accounts, Mr Cable said: "I suspect that a substantial proportion of the bank's assets are of poor quality because of loose self certification and because of the speculative element in buy to let.
"It's important that the taxpayer is given a full and honest statement of what it is that the Government has taken on, even recognising that there was no alternative to public ownership following the collapse of market confidence."
He added: "I will be writing to Alistair Darling with practical suggestions on how the Government can intervene decisively in housing, given that a vast amount of tax payers' money is now tied up with the mortgage lending business, the state of collapse in the house building industry and the inevitable tide of repossessions from the growing numbers of redundant employees unless action is taken through the courts to stem the flow."
Steven Lansdown, chairman of independent financial advisors Hargreaves Lansdown, told BBC Radio 5 Live B&B shareholders were likely to be left out of pocket.
He said: "What the Government are doing by taking on Bradford & Bingley is they are protecting the depositors, the savers, and they are looking to sort out the loan book.
"I don't think they will be too interested in what the shareholders' outlook is, because, after all, that is the risk you take when you invest in a company."
Speaking to BBC Radio 5 Live, Justin Urquhart Stewart, director at Seven Investment Management, said with the takeover of Northern Rock and now the probable nationalisation of Bradford & Bingley, the Government had effectively put the UK's "banking rubbish" in one place to create a "British manure bank".
He said: "This means there are going to be job losses, there are going to be issues in terms of extra cost for the Government. And of course, extra cost to the Government means extra cost to us."Reuse content