London Scottish Bank, which specialises in unsecured consumer lending and debt collection, said on Monday it has gone into administration after its capital reserves ran short and it couldn't find a buyer.
The British Treasury said it would protect all retail deposit savings held with the bank, even deposits of more than STG50,000 ($A117,633) - the limit the government has vowed to guarantee at all British banks.
London Scottish Bank has around 10,000 customers with STG250 million ($A588.17 million) worth of deposits. It employs roughly 700 people.
The bank said it had called in administrators after sustaining a shortfall in its capital reserves and being unable to find a buyer for the business in time to avoid administration.
Administrators are appointed to salvage as much of a company as possible for the benefit of its creditors, a process which can involve trying to keep the business as a going concern or breaking it up and selling it off.
"A number of parties remain interested in acquiring the group," the bank said in a statement.
Shares were suspended on the London Stock Exchange. They closed on Friday at 2.6 pence.
