The taxpayer sank more than £1.6 billion into the rescue of Dunfermline Building Society today as the Prime Minister branded the stricken mutual the "author of its own mistakes".
Nationwide Building Society will buy salvageable parts of Dunfermline under the deal and State cash will cover its hefty liabilities.
Reckless lending led Scotland's largest mutual to the brink of collapse with annual losses of more than £24 million before the Government was forced to step in.
Chancellor Alistair Darling, who said his children have savings accounts with the Dunfermline, claimed the Government was left with no other option but a sale and break-up of the 140-year-old institution, which is the UK's 12th largest building society.
The deal will see the Dunfermline brand remain intact and all 530 staff and 34 branches will transfer to Nationwide. However there may be some redundancies from the acquired back office and support operations.
Dunfermline racked up more than £800 million of high-risk loans and assets after snapping up commercial property of more than £650 million at the height of the market which has since crashed.
It bought some £150 million of risky self-certification loans from two US institutions including the now bankrupt investment bank Lehman Brothers.
Prime Minister Gordon Brown defended the Government's action to step in and orchestrate a sale and break-up of the society over the weekend.
He said: "Let's face facts - the Dunfermline building society is the author of its own mistakes: mistaken judgments, mistaken investments, mistaken policies.
"We have had to step in where the Dunfermline building society has failed, and we have stepped in in such a way that we can protect both the savers and give those people who depend on the building society for mortgages a way through for the future."
The Treasury paid £1.6 billion to Nationwide as part of the deal, effectively as compensation for liabilities not covered by Dunfermline's assets.
The Bank of England has taken on another estimated £500 million of Dunfermline's social housing loans that were not included in the deal.
Millions of risky assets shunned by Nationwide and excluded from the deal have also been placed in administration.
But the Government claimed it will be able to recoup much of the cash forked out - leaving the taxpayer with a "small residual exposure", according to Mr Darling.
It will be able to claim some money back from the Financial Services Compensation Scheme while also benefiting from proceeds of the sale of assets in administration.
Shadow Chancellor George Osborne said it was "depressing to see yet another pillar of the Scottish banking system fall in this way", as politicians also criticised regulatory failings in the run-up to the collapse.
The Bank of England used new powers under the Banking Act to rush the deal through over the weekend - the first such move under the legislation.
The tripartite authorities - the Treasury, the Bank of England and the Financial Services Authority - said the sale was vital to save the mutual from going bust.
The Bank of England stressed it was "business as usual for all customers" and that all saver deposits were safe.
The Treasury said full nationalisation of Dunfermline would not have provided "value for money" for the taxpayer.
Mr Darling said the building society needed at least £60 million to £100 million just to continue trading and had not made an annual profit of more than £6 million in the last few years.
But the Nationwide deal was met with disappointment in Scotland that it could not have been supported to remain independent.
Protesters angry at its sale staged a demonstration outside the mutual's headquarters in Dunfermline, Fife.
Scotland's First Minister Alex Salmond hit out at the cash being paid to Nationwide to take over the profitable parts of the ailing Dunfermline.
"Nationwide are going to be paid over £1 billion by the Treasury - while the Treasury takes on, on behalf of the public, the less good bits of the book, the commercial loan book," he told BBC Radio's The World at One.
"Why wasn't it a good idea to spend a fraction of that amount on allowing the organisation to trade forward as an independent entity?"
Dunfermline has more than 300,000 customers, with £2.35 billion in retail deposits and £1.02 billion in mainstream mortgage lending.
Nationwide - which has more than 40 branches of its own in Scotland - has pledged no compulsory redundancies among Dunfermline branch staff for three years.
The building society, which is already the UK's largest mutual, will see its branch network boosted to 900 and its share of the retail deposit market grow to around 11% following the deal.
Graham Beale, chief executive of Nationwide, said: "Nationwide is in a unique position, by virtue of its size and financial strength, to provide support to Dunfermline, and we regard it as both responsible and commercially beneficial to undertake this transaction."
Dunfermline's board - including chief executive Jim Willens, who is a former board director of Nationwide - will resign after the takeover.
Mr Salmond spoke to Nationwide chief executive Graham Beale this morning.
Afterwards his spokesman said: "We have key interests and concerns in relation to the new organisation regarding the headquarters functions and jobs, as well as the maintenance of the Dunfermline Building Society brand.
"The chief executive was not in a position to provide any guarantees regarding the retention on headquarters functions and jobs in Scotland."
He stressed: "Clearly there is a very significant potential loss to Scotland as far as headquarters functions and jobs are concerns, we will be pursuing these issues very vigorously indeed with the Nationwide management."
The spokesman also said there was a "big question mark" over whether the takeover was the best use of taxpayers' cash.
He said: "We are questioning the basis of the takeover of Dunfermline by Nationwide, certainly from the point of view of the Scottish interest but also from the point of view of the interest of the taxpayer as well.
"It may well be the case that for a significantly smaller contribution a package could have been put together, which certainly would have involved the Scottish Government, which would also have involved the Building Societies Association themselves, which could have safeguarded the continuation of the Dunfermline Building Society as a Scottish based society.
"There's a very big question mark over that. The only way you can get an answer over whether what has been done has been done for the best is if we can actually see the value for money assessment on which the decision was based."Reuse content