Building society 'must not fail'

The Dunfermline is Scotland's biggest building society

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The Dunfermline Building Society will not be allowed to collapse, the chair of the Treasury select committee said.

John McFall told the BBC the government would stand by the society, which is facing huge losses.

The financial services watchdog, the FSA, fears additional write-downs might leave the society unable to fund future liabilities.

Its accounts - due to be signed off later - are expected to be revealed next week.

The Labour MP for West Dunbartonshire told the BBC's Newsnight Scotland programme: "The government can't afford to let the Dunfermline Building Society go, if for no other reason than confidence in the financial system.

"Confidence is at an all-time low at the moment and it would just be shattering if that happened. So the government will stand behind this building society."

He said a merger with a larger building society was an option.

Cash flow problems

"But if that does not happen I think the government will stand behind it," Mr McFall said.

"It will do so with a considerable injection of money."

It emerged at the end of last week that the Dunfermline, Scotland's biggest building society, was in serious trouble and facing multi-million pound losses.

The society, which has 34 branches across the country and almost 500 employees, was founded 140 years ago.

It made £2m profit in 2007 but it is now understood that the mutual is having problems with its cash flow.

There has been speculation that it could announce losses of up to £26m.

It is understood many of Dunfermline's woes stem from its exposure to bad loans in the commercial property market.