Chancellor Alistair Darling confirmed today the Government has decided to "waive competition requirements" in relation to the £12.2 billion takeover by Lloyds TSB of its ailing rival Halifax Bank of Scotland.
Mr Darling said he wanted to put beyond doubt the Government's desire to see the merger between the two banks.
He said: "We have made a decision that we will waive the competition requirements in relation to these two banks. That is not going to get revisited."
Mr Darling said the Government wanted to see a deal.
He told BBC Radio 4's Today programme: "In relation to the Lloyds TSB (HBOS) coming together, that is a decision that I think was absolutely right. It was necessary."
He added: "As people, commentators, are saying, if we hadn't done it, the alternative was very bleak indeed. I think this was absolutely right."
Mr Darling said it was important to have a "robust competition regime" in the banking sector.
He went on: "We did change the law earlier this year following the takeover of Northern Rock. There will be exceptional circumstances, whereas I say financial stability, rather like national security, can trump competition concerns."
Mr Darling said it was important to look at the "whole question of liquidity" around the world.
"The whole regulatory regime is one where I don't think it is a question of rushing into something, but it is an area where I think we need to do some more work."
He said he was "extremely concerned" about potential job losses. Mr Darling said many of his constituents were employees at the Scottish headquarters of HBOS.
He said: "It will be very worrying for them but I know the new organisation will be very keen to make its position as clear as it possibly can."
He said the Bank of England was putting 40 billion dollars (£22.3 billion) into the market today following an injection of £30 billion into the UK market earlier this week.
He said: "The key thing, especially at this time, is to maintain stability of the banking system - that is absolutely paramount."
He went on: "The fundamental problem we have had here is that for the last few years banks have basically been lending not just the money they get through deposits but also money which they have been raising on the international money markets.
"When that dried up, that caused all sorts of questions to be raised ... I do think as far as the regulatory regime is concerned, we have got to look at that and learn the lessons from it."
The Government is continuing to look at what is happening in the markets, he said.
"We are determined that we will do everything we possibly can to make sure that we try and stabilise this position because the stability of the financial system is absolutely essential."
Mr Darling suggested events had proved he was right in his much-criticised gloomy assessment of economic prospects last month.
Asked in a BBC Radio Scotland interview if he could guarantee no other banks would be targeted as HBOS has been, he said: "What I can say is that here, America, across the world, central banks, regulatory authorities, governments will do everything they can to stabilise the position.
"And if institutions get into trouble, we will do whatever is right and appropriate in those circumstances.
"But we are going through a period of unprecedented turbulence.
"A few weeks ago I was criticised for making that point - but I'm afraid you can see it writ large at the moment."
The HBOS and Lloyds TSB merger could still face European Commission scrutiny under EU rules on fair competition - but not if more than two-thirds of the new group's European turnover is generated in the UK.
Under strict EU competition rules, the Commission has final approval of all European company mergers which have a significant cross-border impact, even if a national competition authority has waived its own national competition rules.
But if the bulk of the joint European turnover of the merged organisations derives from just one member state, the Commission has no say.
A spokesman for EU Competition Commissioner Neelie Kroes commented: "It is up to the parties concerned to verify whether they need to notify the HBOS/Lloyds deal to Brussels under the EU merger regulation, or just to the UK authorities."
Another Commission official explained: "If the requirement of generating more than two-thirds of European turnover in just one member state is met, the national competition authorities have exclusive power to reject or approve the deal, however big the merger is.
"In this case, it's highly likely that the Government has made that calculation before announcing a waiving of the merger rules."Reuse content