The nationalisation of Bradford & Bingley was hashed out over pizza. Pumping half a trillion pounds into the rest of the banking system called for more substantial preparation.

At about 9pm on Tuesday a Westminster curry restaurant received an order for 32 meals to be delivered to No 1 Horse Guards Road. So it was that Alistair Darling and his team got ready for all-night negotiations to part-nationalise Britain’s banks – with tandoori chicken.

After the debris of his curry was cleared away Mr Darling ushered Britain’s biggest bank chiefs into the large conference room just outside his office. Along one side sat the Chancellor, flanked by Nick Macpherson, Tom Scholar and John Kingman, the Treasury’s three most senior civil servants. Also present were two ministers, Baroness Vadera – who was to serve as the ears and eyes of Gordon Brown – and Paul Myners, the newly appointed City Minister. Both are veterans of the private sector, recruited by Mr Brown to drive a hard bargain.

Available for hurried consultations throughout the night were representatives of a legal firm, a merchant bank and an accountancy firm retained by the Treasury to advise on the deal. Opposite the Treasury team were represenatives of all the leading British banks, including the chief executives of the “Big Three”, Sir Fred Goodwin, of Royal Bank of Scotland, John Varley, of Barclays and Eric Daniels, of Lloyds TSB. When the two sides had met the previous evening both had played their cards close to their chests. A leak, a market meltdown and an explosive political row later and it was clear to all that the time for game-playing had come to an end.

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The Government’s bottom line had already been negotiated at a meeting in No 10 with Gordon Brown, Mervyn King, Governor of the Bank of England, and Lord Turner of Ecchinswell, the chairman of the Financial Services Authority. For two hours the men had hammered out the basic principles of any deal; that the taxpayer should not only be protected but rewarded and that the banks should be made to function for the good of the economy of a whole.

Within 3½ hours of the talks with the banks it became clear that, while the outline of a deal was emerging, a significant sticking point remained: how to ensure that taxpayers shared adequately in any future bank profits.

At 1.40am Mr Darling rose. He had been up since 4am the previous day and knew that he would have to “sell” any deal later to both the media and the House of Commons.

With the clock ticking, the Chancellor told his team that he wanted to be able to brief the Prime Minister well before the markets opened the next morning. At 5am, Mr Darling decided that the talks had got as far as they could and it was time to sign a deal. After a final consultation with Mr Brown, the core meeting in his office broke up with just a handful of officials putting the finishing touches to the statement to be put out to the markets at 7.30am.

Moments after the London markets opened at 8am the Chancellor took to the airwaves to explain the deal. On the BBC Radio 4 Today programme he was quizzed on the value of the deal to the taxpayer but also on whether he should direct the supposedly independent Bank of England to cut interest rates to stave off a serious crash. Well aware that he had come as close as he could to doing just that, Mr Darling allowed himself to hint at the drama to come, saying that the Bank’s own remit allowed it to take more into account than just inflation.

Bolting his breakfast, he checked the initial market reaction. Sharp falls in bank shares were to be expected as the scale of the black hole in their finances became obvious but worryingly there was little sign that traders in stocks in other sectors were suffused with optimism.

In the space of the first hour’s trading, the FTSE 100 index of blue-chip stocks slumped by more than 300 points, hitting a low of about 4,250. The biggest blow was not banks at all, but mining and commodity stocks. China’s announcement that it was cutting steel production – a sign that the global economy is heading for a brutal slowdown – smashed sentiment.

At 9am Chancellor and Prime Minister stood shoulder to shoulder at a press conference in Downing Street. For months before the reshuffle it had been notable how few times Mr Brown was photographed with Mr Darling. With both their political lives hanging on this extraordinary rescue the choreography demanded that they be displayed as brothers-in-arms. “This is not a time for conventional thinking or outdated dogma,” Mr Brown declared from his lectern.

By the time they had finished their press conference, aides could tell both men that there were signs that the markets were warming to the deal. As analysts started to take a positive view of the bank rescue plan and it became clear that HSBC, Standard Chartered and Abbey had no intention of tapping the Government for capital, the mood lightened. Some institutional shareholders cheered as it became clear that taxpayers, not ordinary shareholders, were going to bear the cost. The FTSE began to recover, and HBOS shares soared as the bailout made it more likely that the Lloyds TSB takeover could go ahead on the terms agreed last month. As Mr Brown left for Prime Minister’s Questions in the Commons at 11.45am he knew that the markets were about to receive a second surprise.

The previous night, after agreeing the basic structure of the bank deal, Mr King was pulled to one side. Mr Brown wanted an update on negotiations over a coordinated global rate cut. Mr Brown and Mr Darling left him in no doubt about their preference. Mr King told Mr Brown he had talked by telephone with Ben Bernanke, the Chairman of the US Federal Reserve, and others central bankers.

Although Mr Brown was informed in the usual manner of the decision to cut rates it could have come as little surprise. In any case the Prime Minister rose to his feet on the stroke of midday fully aware that rates around the world were about to be cut – another graphic display of the global nature of both the problem and potential solution to the credit crisis. The US Federal Reserve, European Central Bank, Bank of England, and the central banks of Canada, Sweden and Switzerland all brought in emergency interest rate cuts of half a percentage point. The Fed cut its base lending rate to 1.5 per cent, the ECB to 3.75 per cent and the Bank of England to 4.5 per cent.

Within minutes of the noon announcement, the FTSE 100 had regained all its earlier losses and more. The more confident mood wasn’t to last. Even if the bailout prevented a cataclysmic bank failure, banks were in no position to start lending again, traders realised. The world was still heading for a deep slowdown. Credit would remain extremely tight and expensive for individuals and companies. Indeed, the sudden shortage of credit was starting to trigger casualties among some of the City’s biggest hitters.

By mid-afternoon news emerged that Robert Tchenguiz, one the biggest property and investment magnates of this decade, was facing up to £1 billion of losses after the Icelandic bank Kaupthing seized control of his holdings in Mitchells & Butlers, the pubs group and Sainsbury. A number of Russian oligarchs were also rum-oured to have had big shareholdings seized as the credit bubble that helped to build them up continued to deflate.

By the close at 4.30pm, the FTSE 100 was well down again, ending the day at 4,367, down 239 points. There was one consolation for Mr Darling: HBOS, perhaps the most vulnerable of the banks, ended up 24 per cent.

Nevetheless, both Mr Darling and Mr Brown will have been content. In the Commons, the Opposition were reduced to little more than spectators, their significance reduced further by events on the international stage. Even as George Osborne, the Shadow Chancellor, sought to probe some of the deal’s more obscure corners, President Sarkozy of France was calling for more coordinated action between governments and central banks.

For months, Wednesday, October 8, had been a red-letter day in the Treasury diary. It was the day when Mr Darling planned to explain why he would be scrapping the “golden rule” limiting public borrowing to 40 per cent of GDP. The admission threatened to be a moment of political danger. In the event, October 8 will be remembered as the day that Mr Darling bet £500 billion of taxpayers’ cash on bailing out the banks, accused only of dithering for not acting sooner.

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