Mortgage lender Bradford & Bingley (B&B) will be nationalised in a bid to save it from bankruptcy.
The government will take control of the bank after it got into financial difficulties and share prices fell sharply last week.
Its £50 billion worth of loans and mortgages will be managed by ministers in a similar fashion to the Northern Rock rescue package that was announced last year.
Spanish company Santander – which recently bought Alliance & Leicester and owns Abbey – will take over B&B’s branches and savings portfolio.
Bankers negotiated the deal with government officials over the weekend, reports suggest.
“We’ve been very clear that the priority is to make sure that depositors, that ordinary savers, are properly protected … we can support the financial stability of the banking system as a whole,” Treasury minister Yvette Cooper told the BBC.
Halifax Bank of Scotland was taken over by Lloyds TSB earlier this month, also in a bid to save it from going under.