Alistair Darling is close to ordering the nationalisation of Bradford & Bingley as a search for a private sector buyer for the stricken lender becomes increasingly desperate.

Seven months after Northern Rock was taken over, the Chancellor has ordered officials to prepare to take a second financial institution into public ownership, although Treasury officials last night stressed no decisions had been taken.

Last ditch talks to find a buyer are set to continue through the weekend but officials did not deny that Mr Darling was considering using new powers to nationalise banks passed after the run on Northern Rock.

"You would expect us to have contingency plans," said a Treasury spokesman.

The seizure of B&B would be explosive, taking more than £40 billion of assets and liabilities on to the Government balance sheet and would be certain to trigger a backlash from shareholders who have only just injected £400 million into the business to beef up its balance sheet.

Ministers are acutely conscious of the danger of sparking a depositor panic. However, deposits of up to £35,000 at all banks, including B&B, are anyway guaranteed under the Financial Services Compensation Scheme. Nationalisation would make deposits even safer.

B&B, which specialises in buy-to-let mortgages and other higher-risk lending, has been beset by difficulties for months, culminating this week in a series of credit rating downgrades by influential ratings agencies. Its shares fell to a new all-time closing low of 20p yesterday from a high of 536p in March 2006.

The Financial Services Authority has been reportedly attempting to line up a "white knight" bidder to rescue the bank. Banco Bilbao Vizcaya Argentaria and Banco Santander of Spain and ING of the Netherlands, have been mooted as possible saviours.

But with markets so febrile and banks so nervous about conserving cash and not taking on additional risk, a rescue bid has been looking increasingly unlikely, even at a rock-bottom price.

B&B is seen as an unknown quantity because of its aggressive expansion into buy-to-let lending and because of its huge portfolio of "self certified" mortgages - home loans where the borrower has not been required to provide proof of income and known sometimes as "liars' loans".

While reasonably strongly capitalised, following a £400 million injection of fresh capital in August, it is still relatively highly dependent on wholesale funding - a weakness that led to Northern Rock's demise last year.

The downgrades by the ratings agencies have left it with the lowest ranking investment-grade score of BBB-. Any further downgrade would see it dubbed "speculative grade" or "junk", an untenable position for a deposit taking institution.

A B&B spokesman said last night, "We do not comment on market rumour or speculation."

After emerging from his 90-minute meeting with President Bush in Washington last night Gordon Brown also refused to comment on "speculative statements".

The bowler bank

— Both the Bradford Equitable Building Society and the Bingley Building Society started out in separate West Yorkshire towns in 1851

— In 1964 the two companies merged to create Bradford & Bingley, at the time the eighth largest building society in the country

— It introduced its famed bowler-hatted advertising campaign later that year. In 2002 M&C Saatchi created a bowler-hatted Ms Bingley

— It demutualised in December 2000

— In 2007 Bradford & Bingley was the eighth largest lender of new mortgages in Britain

— At the end of last year it had 197 branches and 140 branch-type agencies and employed 3,200 staff

— Its headquarters are housed in Bingley, which was once known as the Throstle’s Nest of Old England

— Bradford & Bingley is team sponsor of Bradford City Football Club and Yorkshire County Cricket Club

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