Rosenblatt Solicitors head of financial services Nigel Frudd says the deal distorts competition.
Frudd says the Government’s “retrograde” decision is inconsistent with EU subsidy regulations and provides Northern Rock with a guarantee that cannot be matched by other banks.
He says it could indirectly cause the opposite effect to that which the Government intended – another run on the UK banking system.
Frudd says: “The major banks are desperate to collect deposits for capital adequacy reasons and you can see this in the rates they are offering in the high street. A major shift to Northern Rock could make the banking system vulnerable.
“It also begs a couple of other questions. Why should anyone have deposits with any other bank other than Northern Rock as it is guaranteed by HM Treasury and, thus, why save with National Savings and Investments?”