Deal the watchdog was begging for

This is just the sort of deal the chief executive of the Financial Services Authority wants to see as British banks struggle through the credit crunch, even if it looks like a fire-sale price.

Having watched Northern Rock collapse and Royal Bank of Scotland, HBOS and Bradford & Bingley turn to shareholders for funds, Sants and others at the City watchdog have been desperate to avert another disaster. The FSA was given a kicking for allowing the Northern Rock debacle to take place at all.

A&L now has the prospect of a large owner with a strong balance sheet and a history of riding to the rescue of British banks thanks to its successful acquisition of Abbey.

The Spaniards' willingness to take on A&L - albeit at a vastly reduced price to what France's Crédit Agricole was looking at two years ago - shows muchneeded faith in the banking system.

Not only did A&L shares jump on the news, but so too did those in Bradford & Bingley\, pushing them up towards the 55p its £400 million rights issue is priced at. One analyst last week claimed B&B shares were "worthless". There is growing hope now that this is not the case.

B&B will get its money this week, even if a large rump of stock is left with its underwriters, and the FSA will then turn its attention to securing a takeover here.

It is thought to have sounded out a number of banks and prospective bidders to come in for the buy-to-let lender. This is B&B's third attempt at a rights issue, the first collapsing at a rather heady 82p a share and the second falling apart when US private-equity house Texas Pacific withdrew. The FSA was furious, but quickly found a solution. That A&L's future now looks secure is another major boost.

It also shows confidence in the mortgage market at a time when lending rates are falling, and house prices with them. Santander is today saying that it is willing to fund A&L's mortgage book. In other words, it thinks mortgages, or at least those that are more prudent, are still valuable - which is good news for all lenders.

A&L said in May that it was funded into the second quarter of 2009. However, with the credit crunch persisting it was vital to secure its future beyond this, and that is what Santander appears to have done.