The Co-operative Group could cost the UK taxpayer millions should its plans to plug the gap in capital fail.
It is currently drawing up plans to put £1 billion in itself, while forcing bondholders to face a £500 million loss on their £1.3 billion investment. However, should bondholders reject the rescue deal, the institution could end up being resolved by the Bank of England, the Telegraph reports.
In this situation, bondholders would potentially lose everything, although sources revealed taxpayers would also be at risk as the government may need to provide a bridging loan.
Bradford & Bingley and Dunfermline Building Society received state support when receiving finance to move customer deposits to rival banks.
The Co-operative Group could be forced to sell its funerals or pharmacy business if the rescue scheme fails to work. The company has struggled recently and saw its deal with Lloyds, which would have seen it pick up hundreds of branches, collapse.
By Tony Aynsley