The hastily assembled agreement followed a collapse in HBOS' share price due to funding concerns that many observers said were exaggerated.
The government is planning to change competition law to extend its "public interest" powers to override potential concern about creating an entity with over 28% of the U.K. mortgage market.
Chancellor of the Exchequer Alistair Darling, who was strongly criticized the near-collapse and eventual nationalization of smaller lender Northern Rock, defended the government's position.
It is the second time in two months that a U.K. institution has agreed to a cut-price takeover. Banco Santander SA in July agreed to acquire Alliance & Leicester plc for £1.8 billion initially caused outrage, though that was well before markets imploded. - Laura Board
See Dealscape: Breaking: Lloyds strikes deal for HBOS
See Dealscape: HBOS, Lloyds TSB get serious about possible hookup
