Santander will take over the £20bn savings business and branch network of troubled Bradford & Bingley, the Spanish banking giant has said.
Treasury officials and bankers are putting the final touches to the deal, says BBC business editor Robert Peston.
A formal announcement is expected early on Monday morning, which will also confirm that B&B's £50bn in mortgages and loans is being nationalised.
Santander already owns Abbey, and recently bought Alliance &
The move comes as financial institutions throughout the world face intense pressure from the credit crunch.
In the United States' largest bank failure, Washington Mutual was taken over by regulators and sold on to JPMorgan Chase
Lehman Brothers collapsed, Merrill Lynch sought refuge in a takeover by Bank of America and Morgan Stanley secured a large capital injection from a Japanese rival
US insurance giant AIG had to be bailed out by the US government, which in effect took an 80% stake in the firm
The governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest £9bn in huge financial services group Fortis, in effect nationalising it.
The Treasury has been expected to sell B&B's 200 branches but the bank has told savers that deposits are safe and Treasury minister Yvette Cooper said they would be "properly protected".
Ms Cooper told the BBC One Politics Show that negotiations were still ongoing, but the chancellor would make a statement before the markets opened on Monday.
"We've been very clear that the priority is to make sure that depositors, that ordinary savers, are properly protected, but also that we can support the financial stability of the banking system as a whole."
B&B's share price plummeted to a record low last week.
Minister promises financial help
Bank spokesman Tony McGarahan said: "We can assure customers that their deposits are safe with Bradford and Bingley."
The British Bankers Association is unhappy at some aspects of the plan.
Association chief executive Angela Knight told BBC Five Live she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.
"The financial services industry underpins, not just the UK economy, but indeed all of us individually, and there can be times where authorities have to step in," she said.
She said it was a "very great shame that it's got to this place".
Conservative leader David Cameron said nationalisation should be a last resort. He told the BBC the Tories would not sign "blank cheques" for the taxpayer to bail out failing institutions.
But John McFall, chairman of the Commons Treasury Select Committee, told the BBC: "We have to make a decision - do we take it [B&B] into the state, or do we play Russian roulette with people's jobs and homes?
"I know what I'd prefer."
B&B's share price has plummeted and it has announced plans to cut 370 jobs due to a downturn in the mortgage market.
A year ago its share price was 300 pence, but has now sunk to 20 pence.
The bank will be nationalised using special legislation the Treasury put through when it took Northern Rock into public ownership earlier this year.
The nationalisation and break up of Bradford & Bingley will represent a momentous event in the history of British banking
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