Herbert Smith and Lovells, the City law firms, have won coveted roles advising the Government on preserving the stability of the financial system, The Times has learnt.

Several top City firms were in contention for three places on a legal panel established by the Treasury to advise it on implementing legislation aimed at avoiding banking collapses. Herbert Smith and Lovells were selected alongside Slaughter and May, the Treasury’s adviser on banking matters, the Treasury confirmed last night.

The appointment is a coup for Herbert Smith and Lovells, which have struggled to compete with the bigger “magic circle” firms in recent years. Although the Treasury pays significantly less than commercial clients, many City lawyers were eager to secure a place on its panel because of the high profile of the work and to increase their chances of winning future government business.

Slaughter and May has had a stranglehold on advising the Government since the banking crisis began two years ago. It was appointed in the wake of the collapse of Northern Rock because it was considered to be the only “magic circle” firm that was not conflicted because of ties to big financial institutions. Last year it received £22 million in fees from the Treasury. The Treasury said that it was in taxpayers’ interests to divide up its legal work now that the crisis had abated and to invite other law firms to tender.

Law firms are also awaiting the result of a tender process held by UK Financial Investments (UKFI), which manages the Government’s stake in banks such as Lloyds TSB and the Royal Bank of Scotland. UKFI is expected to appoint up to ten firms to advise on unwinding the state’s holdings. A decision is expected as early as next week.

Lovells management committee yesterday voted unanimously to endorse a planned merger with Hogan & Hartson, a Washington-based law firm. The tie-up, which must be approved by partners of both firms, would create the world’s eighth biggest law firm.

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