The Government has formally seized control of ailing mortgage lender Bradford & Bingley (B&B).

B&B’s fall into public ownership puts £50bn including £41bn in mortgage loans on the public balance sheet. Gordon Brown, the Prime Minister, said the Government had taken “decisive action”, and the head of the Financial Services Authority (FSA) warned there could be more turmoil to come.

B&B was squeezed as the credit crunch hiked its funding costs, and the housing market slowdown cast doubts over its main buy-to-let business. Bad debts and arrears have soared, it has lost millions on complex mortgage-backed investments, and had its investment status downgraded.

B&B’s savings business and branches – with 2.7 million customers and £20bn in deposits – have been sold to Spain’s Santander for £612m. Santander, which is keeping the B&B brand, owns Abbey and recently agreed to buy Alliance & Leicester. The deal will give it 10% of the UK retail savings market.

The Treasury said it would be "business as usual" for B&B’s savers and borrowers. B&B has about 3,000 staff and 197 branches and was the last former building society to retain its independence after Northern Rock’s nationalisation and July’s takeover of Alliance & Leicester.

The Financial Services Compensation Scheme (FSCS) has paid out £14bn - a loan funded by the Bank of England - to allow B&B’s retail deposits to be transferred to Abbey. The Treasury is paying a further £4bn to cover deposits not protected by the FSCS – those with savings of more than £35,000 – and will then take on the Bank of England loan.

The Government argues the risk to the taxpayer is minimal because the loans will be paid back by mortgage redemptions.