The chancellor has defended the deal which will see the Nationwide take over the Dunfermline Building Society.
Alistair Darling told MPs the move was necessary to protect customers and prevent the society collapsing.
The Nationwide is to buy all the Dunfermline's branches, good loans and deposits, although the brand name will remain.
The Dunfermline's new owner said some of the society's 530 employees "may not be required".
The building society was put up for sale after incurring losses of about £24m last year.
The Treasury will take on about £1.6bn of commercial property lending and acquired mortgage debt under the deal.
Scottish First Minister Alex Salmond has said there were "perplexing" questions over how the society had been treated by the Treasury and the Financial Services Authority (FSA).
But Mr Darling said the Dunfermline would not have survived if a deal had not been struck with the Nationwide.
Darling: 'Bailout would not have fixed problem'
He said: "The decision to transfer the building society's main business to the Nationwide was made to protect depositors and safeguard financial stability, as well as to protect the interests of the tax payers."
Mr Darling said the society had suffered a long-term deterioration in its financial position in the past few months.
But he said the first option, to inject a minimum of £60m into the Dunfermline, would not have provided a long term solution.
The chancellor said the building society would have been likely to need more money in the future.
On Saturday the FSA decided the Dunfermline was likely to fail to meet its conditions to remain open for business.
It was also not likely that action could be taken by the Dunfermline to enable it to satisfy these conditions.
Mr Darling added: "The Dunfermline's problems were caused by a range of factors. The society is engaged in substantial commercial property lending in excess of £650m, making many of these loans in 2005 and 2006 when prices were at their highest level, and they are now losing money on many of these loans.
"The society also purchased in 2006 and 2007 over £150m of high-risk self-certified mortgages from two American firms, Gmac and a subsidiary of Lehman Brothers, just before the global market of such loans completely collapsed.
"These decisions, together with the need to write-off £10m from the purchase of a £31m IT system, contributed to the society making an expected loss of over £24m last year."
The FSA had been in constant touch with the society since November, Mr Darling revealed.
He said any losses associated with the remaining assets which have not been bought by the Nationwide would be met firstly by the remaining capital in the society, and by the financial services compensation scheme, leaving a "small residual exposure" for the government.
The overall net financing provided by the Treasury to Nationwide was £1.6bn, he confirmed.
Shadow chancellor George Osborne said it was "sad" that the 140-year history of the independent building society had come to an end, and "depressing" that another pillar of the Scottish banking system had fallen.
The management at Dunfermline must bear the primary responsibility for taking a safe, and dare I say it, quite boring building society, and turning it into a high risk property speculator
"The absolute priority is to protect depositors and their transfer to the Nationwide does that," he told the Commons.
"We should all be concerned about the future for the 500 staff who work in the branches and the head office. This will be an anxious time for them and their families."
Mr Osborne also questioned why the FSA had not stepped in earlier.
He said: "Of course, the management at Dunfermline must bear the primary responsibility for taking a safe, and dare I say it, quite boring building society, and turning it into a high risk property speculator.
"But why did the Financial Services Authority let them do that?"
Scotland's First Minister Alex Salmond hit out at the cash being paid to Nationwide to take over the profitable parts of the ailing Dunfermline.
"Nationwide are going to be paid over £1bn by the Treasury - while the Treasury takes on, on behalf of the public, the less good bits of the book, the commercial loan book," he told BBC Radio's The World at One.
"Why wasn't it a good idea to spend a fraction of that amount on allowing the organisation to trade forward as an independent entity?"
Nationwide has said Dunfermline's 34 branches, which have 245 employees, would remain intact but that it was likely that some staff would "no longer be required".
There could be significant job losses among the 289 people employed in the Dunfermline's head office.
The Dunfermline was founded in the Fife town from which it takes its name in 1869.
A protest about the sale took place at the mutual's head office in Dunfermline on Monday morning.
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