British banking watchdogs have given their blessing to a takeover of Credit Suisse by its Swiss peer UBS, as financial regulators around the world race to contain the industry’s biggest crisis since 2008.

Sky News understands that the Bank of England has indicated to international counterparts and to UBS that it will support the emergency transaction, which both European banking giants want to announce later on Sunday.

Credit Suisse has been brought to the brink of financial calamity despite securing a $54bn (£44bn) credit line from Switzerland’s central bank several days ago.

The move, which was designed to reassure markets and depositors, failed to halt a rush of customer withdrawals, prompting a request from the Swiss government for UBS to explore a takeover of its historic rival late last week.

Jeremy Hunt, the chancellor, and Andrew Bailey, the Bank of England governor, are being kept informed about developments relating to the most significant global banking merger since the financial meltdown of 15 years ago.

Although Credit Suisse has a market capitalisation of just $8bn (£6.6bn) – down from close to $100bn (£82bn) at its 2007 peak – fears for its future have sent shockwaves through financial markets across the world.

Its vast investment bank balance sheet is reported to represent a stumbling block in the talks with UBS, and the precise structure of a deal remained unclear on Sunday morning.

UBS’s board, chaired by the former Morgan Stanley executive Colm Kelleher, is said to have been reluctant to explore a deal with its fellow Swiss bank, which has been forced into a string of capital-raisings after huge fines and restructuring charges.

City sources said authorities in the US had pressed the Swiss government to expedite a solution to the crisis during the course of this weekend.

Reports suggest that UBS wants the Swiss government to provide a multibillion dollar backstop to insure it against losses arising from the takeover of its smaller rival.

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The current tumult in the global banking sector was sparked by the collapse of Silicon Valley Bank in the US earlier this month.

Its UK branch was rescued by HSBC for £1, but a number of other mid-sized American lenders have also been forced to seek emergency funding.

Hopes takeover will avert contagion

Nevertheless, there are hopes that a takeover of Credit Suisse will avert the kind of contagion that evokes genuine comparisons with the crisis of 2008, when banks including Bear Stearns and Lehman Brothers collapsed.

Credit Suisse employs approximately 5,000 people in the UK, making it one of the largest investment banking employers in the City.

The Bank of England declined to comment on Sunday, while Credit Suisse and UBS have been contacted for comment.