Sir Richard Branson questioned the Government's decision to nationalise Northern Rock as he admitted defeat after five months working on the deal.
Virgin Money was named as preferred bidder by Northern Rock in November and remained the favoured private-sector solution until yesterday, when the Government decided nationalisation was better value for the taxpayer.
Sir Richard said nationalisation was "not the right answer" and that a commercial solution would have been a better option.
He added: "All of us in the Virgin consortium are very disappointed that the Government has chosen to opt for nationalisation. We were very clear the business plan we put forward was robust, conservative but ultimately capable of rescuing the interests of all stakeholders.
"However, we must accept the decision with good grace and hope that the Rock will somehow find better fortune in the future."
A key reason for Virgin's failure was the Government's demand for the taxpayer to make a fitting return on its support for the stricken bank. The Chancellor said the hurdle for the taxpayer to share in a revival was too high because it required the equity value of Northern Rock to hit £2.7bn.
Virgin proposed giving the Government warrants over a stake in Northern Rock that would have paid out £100m to £200m when the bank's shares hit 50p. It said this amounted to the value of the equity roughly doubling over five years.
Virgin had proposed a £1bn injection at 25p a share, split equally between a rights issue and investment by the consortium. It would also have injected its Virgin Money business, which it valued at £250m. The bank's existing shares, which closed at 90p on Friday, would have dropped to around the rights issue price, valuing the equity at about £1.35bn.
People close to the negotiations stressed the risk that Virgin would have taken in investing in Northern Rock. They said negotiations between the Government and the European Commission could have delayed Virgin taking control for many months. Potential litigation from shareholders also added uncertainty to the transaction, they said.
The Government made a share in any revival of Northern Rock a key plank in its demands to bidders to ward off claims that the taxpayer's money had been used to subsidise the private sector.
The rejection of Sir Richard's proposal sets him back in his long-held ambition to take on the established UK financial services industry.
He said Virgin would now put its efforts into building up Virgin Money, which its chief executive, Jayne-Anne Gadhia, has said is performing more strongly than is understood.