Northern Rock is considering a plan to run the stricken mortgage lender as a smaller entity if efforts to find a buyer prove unsuccessful.

According to people familiar with the matter, Northern Rock's board is contemplating a move that would see the bank continue as an independent entity. The plan would involve attracting new management, raising additional capital from shareholders and possibly selling some of the bank's assets to other institutions.

But it is highly unlikely that such a plan would be activated unless attempts to sell Northern Rock fall through. The bank is talking to Sir Richard Branson's Virgin Group as well as Olivant, the private equity firm run by Luqman Arnold, the former chief executive of Abbey National and UBS.

Further, the government is drawing up plans to nationalise Northern Rock and many people involved still believe that state ownership is the most likely outcome.

Both Virgin and Olivant have been given a few more weeks to finalise a proposal. Key to their efforts are the need to arrange a commercial loan that would allow them to partially repay the ?26bn that Northern Rock owes the government. Hopes that such a financing package could be arranged have faded in recent weeks amid credit market fears and concerns about Northern Rock's ability to function without state support.

Northern Rock has also received offers for parts of the business from Bradford & Bingley, the rival UK mortgage bank, and ING, the Dutch lender. People close to Northern Rock believe these partial bids could be used to repay some of the government's debt, leaving a shrun­ken, publicly traded bank.

Northern Rock is limbering up for a showdown with its largest shareholders in mid-January, when it will hold an extraordinary meeting called by RAB Capital and SRM Global, the hedge funds that own more than 15 per cent of the bank.

They have tabled resolutions at the EGM that would limit the board's ability to issue new shares, sell assets, or make acquisitions without shareholder approval. But Bryan Sanderson, Northern Rock's chairman, has made it clear he sees the measures as "unnecessary".

Shareholders are betting the government is unwilling to risk the political damage and likely litigation that would arise from nationalisation. However, government officials have stressed in recent weeks that nationalisation would be a temporary measure.