Up to £50 billion of UK Government funding is to be made available to Britain's banks in an attempt to restore confidence to the financial system and stabilise the current turbulence, the Treasury has said.

Eight major financial institutions – Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide, Royal Bank of Scotland and Standard Chartered – will have access to a £25 billion fund, subject to these organisations themselves raising £25 billion in new capital.

The remaining £25 billion of new Government money will be made available to any other eligible financial institution that successfully applies. The funding is to take the form of preference shares, where the Government takes a non-voting stake in the business it is supporting.

In addition to the £50 billion of potential funding, the Government is also offering £250 billion in loan guarantees, in a bid to encourage banks to resume lending to each other – lending that has dried up over fears of other institutions' abilities to repay.

The Government said that "extraordinary market conditions" warrant such actions, which will also involve the Bank of England increasing its short-term liquidity lending to £200 billion.

Speaking this morning, Prime Minister Gordon Brown said that "good strong banks are essential for every family and for every business in the country" and that the extent of the recent problems "call for the bold and far-reaching solutions that the Treasury has announced today".

The moves have been welcomed by the banking sector, while First Minister Alex Salmond commented that "substantial" cuts in interest rates are also required to prevent further economic problems.

"The package is substantial and is focused on injecting much needed liquidity and confidence into the system – rather than the previous practice of reacting to issues on an institution by institution basis, and that is extremely positive.
 
"I particularly welcome the action to release term lending into the system, in order to kick-start inter-bank lending and ensure that banks get back to their business of supporting the real economy in order to stave off economic downturn," he added.

Salmond also called for "comprehensive deposit protection" for savers, while stressing that any such comments are made "in a totally constructive fashion". He also again argued that £42 million not spent in Scotland in 2007/08 should be released by the Treasury to support the economy north of the border.