The government’s plan to nationalise Northern Rock came under fresh fire yesterday as rival banks warned that public ownership of the lender could put them at a competitive disadvantage. Financial Times

Emergency legislation to take Northern Rock into public ownership is due to be introduced in the Commons today after a five month search for a private buyer ended in failure on Sunday.

The government wants to make the stricken bank prosper so it can be returned to the private sector as quickly as possible. But senior banking executives believe Northern Rock should face strict guidelines on how it can operate in the mortgage and savings markets to prevent rivals from being unfairly disadvantaged.

Adrian Coles, director general of the Building Societies Association, said: 'We are very concerned that taxpayer-funded compensation for an institution that has failed would lead to pressure being put on organisations which have not failed and do not need taxpayer support.'

Richard Lambert, the director general of the CBI, the employers’ organisation, said it was 'critically important' that the bank should not be allowed to distort the savings market.

Rival bankers believe the government’s ambitions should be limited to running down Northern Rock’s business in order to ensure taxpayers do not lose out.