Bradford & Bingley denied yesterday a bid for any part of Northern Rock.

The former building society, now a mortgage bank, was responding to a BBC report that said it had approached its stricken rival about buying some of its mortgage assets.

B&B said it was one of several companies which had been contacted by Northern Rock's advisers over a potential sale of the bank, but that no offer for the group, or any of its assets, is currently planned.

"Bradford & Bingley was one of the parties that received a copy of the Northern Rock briefing memorandum. We are not actively pursuing a bid for any part of Northern Rock at this time," said a B&B spokeswoman.

In a statement issued earlier, B&B said only it was not planning to bid for all of Northern Rock, and declined to comment on whether it intended to buy some of the bank's assets.

On Wednesday night the BBC reported that B&B had approached Northern Rock about buying part of its mortgage book, and said the lender could participate in a wider private sector rescue of its beleaguered rival.

Northern Rock has been in talks with suitors since it revealed on September 14 that the credit crunch had forced it to borrow emergency funds from the Bank of England.

A consortium led by Sir Richard Branson's Virgin Group, and Olivant Advisers, an investment firm headed by former Abbey chief executive Luqman Arnold, are currently front-runners in the race to take control of the group.

However, there is mounting speculation that tight credit market conditions could prevent the bidders from raising the funds needed to repay Northern Rock's estimated £25 billion borrowings from the BoE.

That would leave the Government, which has said it would prefer a private sector rescue of Northern Rock, with little option but to nationalise the bank.

Prime Minister Gordon Brown yesterday said that "all options are on the table" regarding Northern Rock, while stressing that a private sector rescue is still the government's preferred outcome.

Meanwhile, City regulator the Financial Services Authority said tougher funding standards are needed to prevent a repeat of the turmoil in money markets which crippled Northern Rock.

The FSA called on banks to take a "belt and braces approach" to ensuring they have enough cash to meet their short-term needs.

The FSA has launched a review of liquidity risk for banks and building societies, but said in its initial conclusions: "The application of existing high-level standards needs to be toughened."

Acting managing director of wholesale markets, Thomas Huertas, said maintaining proper levels of liquidity at all times was "critical" for banks and building societies.

He said: "We recommend that banks take a belt-and-braces approach.

"The 'belt' is a comprehensive view of all the demands for funds that a bank could face as well as a plan to meet those demands.

"The 'braces' are a quantity of cash or assets that can be turned into cash at short notice even under stressed market conditions."

The Bank of England has pumped £10 billion into money markets in a bid to restore confidence in the market.

The FSA's liquidity review also calls for tougher "stress-testing" to test banks' business models, and emphasised the responsibility of boards and management.

Mr Huertas added: "We already know, following the events of the late summer, that individual firms' stress-testing and contingency funding plans need improvement."

The watchdog will launch a full consultation on possible liquidity regulations next summer.

Shares closed up 4p at 90.7p.