Here are the seven people and principles that the Government should be seeking to safeguard in its handling of Northern Rock. In order of importance:

1. Depositors. Banks are different from other businesses, where customers shop at their own risk. The people who have placed their savings in Northern Rock need to know that their money is safe, not only to prevent another run on the bank but to ensure confidence in the banking system. It is in the general public’s interest that the depositors sleep easy at night.

2. Financial stability. The Government’s job is to address systemic risk. The chaotic collapse of a bank could easily prompt a run on others, paralysing the financial system and damaging the economy. Jobs and prosperity well beyond Tyneside are at stake.

3. Taxpayer funds. British citizens did not sign up to Northern Rock’s foolish business model, nor should they underwrite it. While Treasury money is not sacrosanct – i.e. the Exchequer’s balance sheet and, conceivably, limited funds may be made available to reassure depositors and prevent systemic collapse – the British people did not elect members of parliament to be bank managers. Taxes should be spent on healthcare, education and defence, not FTSE bailouts.

4. Market precedent. Business must, ultimately, be governed by market risk. If the Government nationalises Northern Rock, it implicitly takes on responsibility for businesses that fail in the future. If the Government orchestrates an industry bailout and asks successful banks to pay for Northern Rock’s failure, then it punishes prudence and rewards recklessness.

5. The employees. Northern Rock’s management underestimated the possibility of a seizure in the credit markets that put a stop to the bank’s essential funding. The people who work at the Newcastle bank, though, were following orders, not setting the strategy. As far as is possible, their futures should be assisted, either by securing a private sector solution to the problem or by helping them make the transition to other employment. It is not the job of government to protect jobs in failed ventures.

6. The creditors. Financial institutions who provide loans are taking a risk. Their debts may need to be honoured in the short term to keep the business operational, while its future is decided. In the longer term, lenders who lose out because they extend loans to failed businesses are not the responsibility of the general public.

7. The shareholders. Investors took a decision of their own free will to put money behind the business. The public would not have shared in their profits. They are not responsible for their losses.

Having prioritised the seven groups and ideas that should shape the Government’s thinking, the options for Alistair Darling are clear.

Ideally, the Chancellor will preside over a banking sector solution to a bank problem. Either Northern Rock will, as it so desperately hopes, find a lender who will put it back on its feet and enable it to operate once again as a standalone bank. Or an investor such as Luqman Arnold, the former Abbey boss, will buy a 10-15 per cent stake, take control of the business, line up new borrowing facilities and steer the bank back from the brink. Or there will be a work-out, which would see the likes of the Virgin consortium or the JC Flowers team recapitalise the business by buying the shares at a knockdown price, lining up more than £20 billion in loans, covering the Treasury’s potential exposure and, ultimately, earning a fortune from the Rock’s profitable mortgage book. These options would all safeguard depositors, ensure financial stability, minimise taxpayer exposure and set viable market precedents. Employees, creditors and shareholders would suffer.

The second best option is to liquidate the bank, preferably slowly.

The worst option is to nationalise it. This would not only put taxpayers on the hook for many years, but would set the worst possible precedent.

Northern Rock has gone from posing a financial risk to a political one. It is threatening to expose the Labour Government’s penchant for kneejerk nationalisations, the Conservative’s tendency towards political opportunism and the Liberal Democrats’ love of wishful thinking.

But there are 6,500 employees at Northern Rock, there are investors holding half a billion pounds worth of shares and there is a nation of nervous taxpayers. This is not a time for politicking, but for practical decision-making.

Ministers should explicitly rule out the third option and concentrate minds on the first by setting itself and potential rescuers a firm deadline. The elasticity of last Friday’s deadline was not an encouraging start.

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