Government ''will spend £37 billion on bank shares''

Around £37 billion of public money is to be used to buy up shares in three banks, the government announced today.

A total of £20 billion will be spent on a controlling stake in RBS – whose chief executive is also to step down.

The remaining £17 billion is to be split between Lloyds TSB and HBOS, prior to the two firms'' planned merger.

Treasury officials announced the moves following a weekend of talks between ministers, the Bank of England and bank executives.

The capital injection is aimed at stabilising the banking sector, which has been subjected to a collapse in investor confidence over recent weeks as credit crunch conditions worsen.

"The government is today taking decisive action to ensure our banking system remains on a sure footing in the face of continuing and exceptional instability across the world''s financial markets," the treasury said in a statement.

"These actions will also help to build confidence and security in our banking system and provide greater protection for consumers."

Barclays also indicated today that it will seek fresh capital in order to shore up its balance sheet against the continuing credit crisis.

However, it will be attempting to raise the money from private investors rather than the government.