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A £500 billion rescue package for Britain's battered banking industry has been unveiled by Alistair Darling, the Chancellor.

The plan will see the taxpayer take large stakes in the major banks in return for a massive injection of money to prop up their shattered balance sheets.

The part-nationalisation deal comes as a last-ditch effort to prevent the banks from a catastrophic collapse, following another day of hammering on the stock market.

Announcing the deal, Mr Darling said it came in response to "extraordinary times". He said: "We want to make sure that we can get the system going again."

The plan will see the Government spend up to £50 billion on buying priority shares in the banks in order to boost their capital.

In addition the Government will make £250 billion available to underwrite the banks' medium-term debts in an attempt to prevent a disastrous funding gap in the next few years.

The Bank of England will inject a further £200 billion into the money markets under its Special Liquidity Scheme - the deal which sees banks swap risky mortgages for Treasury bonds.

The Treasury announced that the following banks had confirmed they would seek Government help under the scheme: "Abbey, Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland (RBS) and Standard Chartered."

The Treasury made clear that the deal "will carry terms and conditions that appropriately reflect the financial commitment being made by the taxpayer" - expected to mean that the Government has first claim to any dividends and that chief executives can not be paid huge bonuses.

The Chancellor said the taxpayer would not lose out.

"The taxpayers' interest is being protected," he said.

"I'm very clear that in return for all this, the taxpayer has got to see some upside. In relation to lending to small businesses, in relation to mortgages... that's important too."

Gordon Brown hailed the deal, saying: "Extraordinary times call for bold and far reaching solutions"

"This is not a time for conventional thinking or outdated dogma but for fresh and innovative intervention that gets to the heart of the problem," the Prime Minister said.

"These decisions on stability and restructuring are the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses."

The Chancellor also confirmed that banks will be given access to a special supply of liquidity, in an effort to encourage them to start lending and borrowing again. The credit crisis has seen the market for money - which banks rely on for their funding - seize up.

The rescue plan was finalised at an emergency Downing Street meeting on Tuesday evening between Mr Brown, Mr Darling, the Bank of England Governor Mervyn King and the Financial Services Authority chairman Lord Turner.

As part of the deal, the Government has also demanded a boardroom shake-up at RBS. Sir Fred Goodwin, the bank's chief executive, and Sir Tom McKillop, the chairman are expected to leave.

The Government agreed to the deal after the share prices of the high street banks collapsed in another day of turmoil on the stock market on Tuesday. Investors panicked over what was seen as the Government dithering after Mr Darling refused to disclose details of any proposed rescue.

Shares in RBS, which owns NatWest, Direct Line and Coutts, fell by almost 40 per cent to a 15-year low. Its stock market value has now fallen by more than 80 per cent in the past year. Other banks experienced sharp reductions in their share prices with HBOS falling by 41.54 per cent, Lloyds TSB dropping by 12.93 per cent and Barclays down 9.24 per cent.

However, there were doubts among analysts that the bailout would be enough to restore confidence in the UK markets because of the meltdown in the global economy. The FTSE opened two per cent down this morning.

It came after Asian markets plunged again as the crisis intensified around the world. Japan's benchmark Nikkei-225 index closed down 9.6 per cent, dropping to a five year-low and below the psychologically key 10,000 level. Hong Kong's benchmark Hang Seng Index was down about 6 per cent.

The Conservatives said that while they hoped to work alongside the Government to rescue the banking industry, they continued to have reservations over the plans.

George Osborne, the shadow chancellor, said: "In this time of financial crisis, we will work with the Government because people will be very anxious about their savings and their jobs.

"But we must make sure that any support from the taxpayer is used to help save small businesses from closure and enable families to stay afloat, not to pay the bonuses of bankers.

"We should be rescuing the banks to rescue the economy, not to rescue the bankers."

The Liberal Democrats earlier said that the Government's rescue deal needed to be "bold, clear and big enough to stop uncertainty in markets".

http://www.telegraph.co.uk/finance/f...e-package.html