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The lender, which was nationalised last year, revealed in a statement today (1 July) that "its capital base has now reduced to a level below its minimum regulatory capital requirement", and it requires an additional £3bn to plug the gap.

This follows the Financial Services Authority (FSA) having agreed in July last year to waive the limits on the bank's use of Tier 2 capital for a year, in order to give the banking group enough time to bolster its capital base.

In order to build up its capital position, Northern Rock is now proposing a capital restructuring and a further financial commitment from the Treasury.

However, the plan is conditional on European Commission approval.

It has been proposed that the bank be split into two separate entities - 'BankCo' and 'AssetCo'.

'BankCo', which will be regulated by the Financial Services Authority (FSA), will hold retail deposits, some wholesale deposits and a proportion of Northern Rock's unencumbered mortgage assets, together with the lender's branches and mortgage origination capability.

'AssetCo' will hold the balance of the existing residential mortgage book, including those allocated to the Granite securitisation and covered bond programmes. It will also hold the existing government loan to Northern Rock, plus Northern Rock's wholesale funding instruments.

In the meantime, the FSA has confirmed that Northern Rock will be able to continue to operate as normal, without any restrictions on its activities.

Earlier today (1 July), it was reported that Tesco had emerged as a potential bidder for Northern Rock, along with several private equity firms and Virgin. (Read full story.)