The FSA stepped in to stop London Scottish taking deposits
London Scottish Bank has gone into administration after the Financial Services Authority stepped in to stop it accepting deposits.
The FSA acted because the Manchester-based firm did not have the amount of cash it needed to continue operating.
HM Treasury issued a statement saying that all retail depositors would get their money back, even those with more than £50,000 in their accounts.
Officially, only the first £50,000 is supposed to be protected.
The accountancy firm Ernst & Young has been appointed as the administrator.
In February, London Scottish announced it was ending its lending business to focus on its debt collection unit, Robinson's Way.
It specialised in council right-to-buy mortgages and those for high-rise flats.
London Scottish had been looking for a buyer for the group, but said there was no certainty that its discussions would lead to an offer being made.
"A number of parties remain interested in acquiring the group," the bank said in a statement.
The BBC business editor Robert Peston adds:
London & Scottish defines the notion of a marginal bank. It is a genuine tiddler, with deposits of just £273m, and is not by any stretch of the imagination a vital cog in the financial system.
In normal times, its collapse would not pose a serious threat to the banking system.
And therefore the rule of caveat emptor would apply to those who chose to deposit their cash with it.
But these are not normal times.
The chancellor fears that if any saver were to lose out from the demise of London & Scottish, that could prompt significant and damaging withdrawals of funds from other small banks and building societies.
So Alistair Darling has taken the extraordinary step of promising that no retail depositor in London & Scottish will lose a bean, that all depositors will get all their money back, even if they've deposited more than £50,000 at the bank.