The relatively low cost of doing business in the Leeds City Region meant there was a strong case for siting such a bank here, a move that could secure the future of thousands of jobs.

Howard Kew, chief executive of Financial Leeds, spoke out after the European Commission approved plans to split Northern Rock into a "good" and "bad" bank.

The restructuring will see an extra £8bn granted to fund mortgage lending in the "good" bank on top of the outstanding £15bn loan, as well as up to £3bn in capital support from the Treasury. Gary Hoffman, chief executive of the Newcastle-based lender, said it could take a decade to pay back the funds.

Mr Kew highlighted a report by accountancy firm Deloitte, which emerged in March, which said setting up a bad bank in Yorkshire could save thousands of jobs in financial services in the region

"There is the experience and the capability in this area. I think we would put forward a very strong case. The findings of the report have been put to Government by Yorkshire Forward and Financial Leeds."

The City has been rife with speculation that other bailed out lenders – Lloyds Banking Group, which bought HBOS, Bradford & Bingley and Royal Bank of Scotland – may also be split into "good" and "bad" banks after Holland-based financial group ING said this week it would separate its banking and insurance arms. ING received a 10 billion euro (£9.1bn) hand-out from the Dutch Government a year ago.

Keith Bowman, equity analyst at Hargreaves Lansdown, said the prospect of dividing up the British banks had been present since the shotgun merger of Lloyds and HBOS, which left the enlarged group struggling.

Basing a bad bank in Yorkshire is a "possibility", he said. "That may make some sense given its geographical location."

Shipley Tory MP Philip Davies said Bradford & Bingley staff should be used if Northern Rock's toxic assets were managed outside the North East because they were "treated so shabbily" during the bail-out.

"Yorkshire is the obvious place for anything like this to happen because of the availability of skilled workers and we have probably been the worst affected of any area."

Roger Lawson, chairman of the UK Shareholders' Association, said the Government's concern about unemployment in its northern heartland in the run-up to the General Election could mean a "bad" bank is located in Yorkshire but warned it may struggle to persuade people to work for an institution comprised of poor-quality assets.

Northern Rock's "good" bank is to continue its economic activities, while the "bad" bank will become in effect an asset management company running down the remaining toxic assets. Gordon Brown plans to sell off the former and keep the latter under state control.

Neelie Kroes, Europe's competition commissioner, yesterday approved the split under EU state aid rules.

Yesterday UKFI, which manages the taxpayer's stake in the banks, said it had no plans to split Lloyds or RBS into "good" and "bad" banks. It also named a senior UBS banker as its new chief executive on salary of £155,000. Robin Budenberg, who replaces John Kingman, will not receive a bonus or pension.

n Tesco yesterday pledged to create 1,000 jobs with the opening of a new customer services centre at Quorum Business Park, Newcastle. It will manage sales and service for Tesco Bank's home and motor insurance customers.