Gordon Brown has intervened personally in attempts to rescue HBOS, Britain’s biggest savings bank, which is in emergency talks to be acquired by Lloyds TSB.

The Prime Minister spoke to Sir Victor Blank, Lloyd’s chairman, at a City function on Monday night as the bank’s shares tumbled on fears it would be the next victim of the global credit crunch.

In a statement this afternoon, HBOS confirmed it was in “advanced talks with Lloyds TSB Group which may or may not lead to an offer being made for HBOS”.

Mr Brown discussed the impact of the collapse of Lehman Brothers, the American bank, on HBOS and other British institutions with Sir Victor at a private event hosted by Citigroup in London.

They are understood to have talked about the possibility of a merger with Lloyds TSB, although Downing Street sources have denied any suggestion that Mr Brown told Sir Victor, whom he knows well, that he must step in and rescue the mortgage bank.

An official said: “It is not the role of a Prime Minister to tell a City institution what to do”.

The officials pointed out that if a merger were to take place there would be competition and regulation issues that would involve the Government and it would therefore be inappropriate for Mr Brown to have issued any “order” to make the deal happen.

However, the officials added that Mr Brown was clearly anxious to maintain the stability of Britain’s financial markets.

This afternoon, the Bank of England agreed to extend its Special Liquidity Scheme (SLS) to banks after Governor Mervyn King said last week it would close on October 21.

The SLS allows banks to swap hard-to-trade securities linked to past mortgage lending for easier-to-sell Treasury bills issued by the Government.

Since Monday, when Lehman filed for bankruptcy, HBOS shares have fallen by as much as 68.7 per cent as investors dumped stock on fears about the bank’s exposure to the mortgage market and its ability to secure funding.

Earlier today, the Financial Services Authority (FSA), the City watchdog, was forced to issue a statement on the strength of HBOS’s business to stop a freefall in its share price. Shares in HBOS had dropped by more than 50 per cent earlier this morning to just over 80p as panicked investors dumped their stock.

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