Darling 'in touch' on bank talks

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Chancellor Alistair Darling says talks about a merger between Lloyds TSB and HBOS could go on well into the night.

Lloyds TSB stepped in after the dramatic collapse of shares in Britain's biggest mortgage lender.

The merger will create a "mega-bank" but the government has indicated it will override the Competition Commission if it objects to the deal.

Mr Darling said the government's main concern was to preserve the stability of the banking system.

The boards of both banks will meet separately tonight to discuss whether to approve the deal.

Northern Rock fears

Mr Darling said that although the discussions were taking place on a commercial basis, the government was as involved as it could be.

"They've got to decide what's best for the two banks concerned. Of course we are keeping very closely in touch, as are the regulators and the Bank of England," he told BBC News.

It was not in the government's interest for there to be the faintest risk that it would have another Northern Rock on its hands Robert Peston BBC Business Editor <a class="" href="/1/hi/business/7621151.stm">HBOS confirms Lloyds merger talks</a><a class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/">Robert Peston on the HBOS deal</a>

"But my job is to make sure that we do everything possible at this time, especially when you're seeing difficulties all over the world, that we help homeowners, we help savers by maintaining the stability of the banking system, and I'm determined to do that at a time that is extremely difficult here and across the world."

The government decided to push through the tie-up after HBOS had voiced concerns that depositors and lenders had begun to withdraw their credit from the bank.

BBC Business Editor Robert Peston said there were growing concerns in the HBOS boardroom that "a climate of fear" was being created about its future that could lead to a Northern Rock-style run.

The government is expected to smooth over any competition concerns about the tie-up - which will create an institution that will dwarf its competitors - on grounds that it would help financial stability.

The deal was negotiated at a very high level, with Prime Minister Gordon Brown telling Lloyds TSB chairman Sir Victor Blank that it would be helpful if Lloyds could end the uncertainty surrounding HBOS by buying it.

"It was not in the government's interest for there to be the faintest risk that it would have another Northern Rock on its hands," our business editor added.

The boards of both banks are expected give their approval to the tie-up which should be announced early on Thursday.