SNP ministers are preparing to organise a multi-million-pound bail-out to save the troubled Dunfermline Building Society, The Scotsman has learned.
It is understood the Scottish Government is prepared to pump a significant sum into the embattled mutual – possibly as much as 25 million – if this can be done legally and without breaking the rules of the devolution settlement.
It is understood the society is preparing to announce losses of up to 26 million in the next two weeks, losses that have made it vulnerable to takeover by bigger UK institutions.
Following the demise of HBOS as an independent Scottish bank and the near total nationalisation of Royal Bank of Scotland, Scottish ministers are desperate to prevent the loss of another financial institution.
UK ministers, including Gordon Brown, the Prime Minister, have been reluctant to intervene, despite increasingly vocal demands for action.
But The Scotsman has learned that SNP ministers have shown no such reticence and have been involved in private talks with the Dunfermline.
Senior government sources also revealed they have asked officials to find out if there is any way the Scottish Government can legally intervene to help the struggling society. Under the devolution settlement, financial regulation is reserved to Westminster, but ministers believe they may be able to use other devolved powers to help the 140-year-old company.
One option is the use of the Scottish Government's control over housing policy to inject funds into the building society.
The Dunfermline, which has 494 employees, has a strong record of support for social housing in Scotland and has loaned hundreds of millions of pounds to housing associations in the past few years.
The Scottish Government could take over some of these loans, freeing up capital in the building society. Another option would be for the Scottish Government and the building society to work together on shared-equity schemes to stabilise the society and provide greater liquidity.
A spokesman for Alex Salmond, the First Minister said: "We have no specific comment to make except reiterate that we always stand ready to engage constructively in the interests of Scotland in areas which reflect our responsibilities for employment and social housing."
Asked about talks with the Scottish Government, a spokeswoman for the Dunfermline said: "It is not, and never has been, our policy to comment on rumour or speculation."
It is understood Scottish ministers have kept the Financial Services Authority closely informed about the discussions. The FSA declined to comment last night.
A UK Treasury spokesman said: "The authorities have repeatedly made it clear over the past year that they will take whatever steps necessary to maintain financial stability and to protect savers."
In 2007, the Dunfermline made a 2 million profit, but it is set to announce a loss of up to 26 million for 2008 in the next two weeks, caused largely by its exposure to the commercial property market, which has been hit by the recession.
Two of the UK's biggest building societies, the Nationwide and the Yorkshire, are understood to have examined the Dunfermline's situation, but any interest in a takeover has waned. Unconfirmed reports suggest the Treasury would support a takeover by the Nationwide, because that would ease the financial plight of the Dunfermline society without costing the government any money.
The UK government has already used tens of billions of taxpayers' money on various bail-out schemes for high street banks. Despite this, both Downing Street and the Scotland Office have declined to become involved with the Dunfermline, even though it is based in Mr Brown's Fife heartland.
John Curtice, professor of politics at Strathclyde University in Glasgow, said: "Financial matters are reserved and, in this case, as in the case of HBOS, the options open to the Scottish Government are limited."
He said the only way of helping the Dunfermline would be to find a way of using devolved powers, such as control over housing, to give the society access to funds, but the Scottish Government could not undertake a straight bail-out.
The crisis has led to speculation over the future of the Dunfermline's chairman, Jim Faulds, a former advertising executive who took over in 2007.
He is understood to have been considering standing again for the chairmanship but the crisis is likely to diminish his chances of retaining the role, for which he was paid 44,000 in 2007.
Analysis: SNP has learned from HBOS mistakes – and now it can't lose
FOR the past six months, SNP ministers have had to stand back as their UK counterparts poured money into Scotland's banks in a desperate attempt to keep them afloat. At the same time, they have had to endure the jibes from Labour that an independent Scotland would never had had the financial clout to save the banks.
Now they have a chance to turn the political agenda back in their favour because of the Dunfermline Building Society's problems. It is in trouble and no-one in the UK government appears willing to intervene.
But that is not the case with the Scottish Government. Having learned from their mistakes over HBOS, when they hesitated and did little to influence proceedings, Scottish ministers have decided to act.
For them, this is a "win-win" situation. If ministers succeed in keeping DBS viable as a independent Scottish institution, they will have proved the Scottish Government has the ability to spark change for the better in financial organisations. If they fail, they will claim they were hamstrung by the devolution settlement and put immense on the UK government to bail out the troubled building society.