The UK Chancellor Alistair Darling said that the intention was not for the government to own specific banks, but to introduce more stability in exceptional circumstances.

Meanwhile, the Financial Services Authority, the UK financial regulator, urged banks to curb high remuneration for big risk takers although it drew back from proposing measures to directly control pay, which it said was beyond its remit. Critics argue that bank staff who receive high pay in strong markets but who do not suffer equivalent losses when markets tumble are encouraged to make foolish decisions.

Barclays is to raise more than £6.5 billion in capital and the UK government is to take an equity stake in Royal Bank of Scotland, owner of UK private bank Coutts. RBS is seeking to raise a total of £15 billion in fresh capital. Lloyds TSB said its previously announced takeover of HBOS will go ahead and involve a UK government stake.

The dramatic developments involve government involvement in banking groups that add to the UK state's recent moves to nationalise stricken UK mortgage lenders Northern Rock and part of Bradford & Bingley.

Edinburgh-based RBS said its issuance of fresh capital will be underwritten by the UK Treasury at a fixed price of 65.5 pence per share. The UK government will subscribe for £5 billion of preference shares.

Sir Fred Goodwin, the RBS chief executive who has been criticised for RBS’s decision last year to buy part of Dutch bank ABN Amro, is to step down. He will be replaced by Stephen Hester, currently the chief executive of British Land, the real estate company. Sir Tom McKillop, RBS chairman, will leave the bank at its annual general meeting next April, RBS said in a statement to the London Stock Exchange.

"The steps we have announced today, taken in conjunction with the Government, will secure a stronger future for the RBS Group. We regret having to raise new capital but believe that decisive action is necessary in this unprecedented market environment,” Sir Tom McKillop said.

“Following the recapitalisation, RBS will be one of the best-capitalised banks in the world, enabling us to support our customers while pursuing our refocused strategic goals," he added.

Meanwhile, UK bank Barclays, parent of Barclays Wealth, said it intends to raise capital from shareholders to meet tougher funding rules laid down by UK authorities in the wake of the credit crunch.

In a statement to the London Stock Exchange, Barclays said it is “well capitalised, profitable and has access to the liquidity required to support its business”. It said its plans to raise its pro-forma Tier 1 Capital – under Basel bank regulations – would take the capital to more than 11 per cent based on numbers for 30 June this year.

Barclays has recently agreed to buy the North American arm of bankrupt US investment bank Lehman Brothers.

“Given the strength of Barclays well diversified business and the existing capital base, the Board expects that the additional capital will be raised from investors without calling on the government funding which has been offered to UK Banks,” the Barclays statement said.

The Barclays capital-raising will be funded by issuing preference shares to raise about £3 billion by 31 December 2008, issue new ordinary shares to raise £600 million, and issue a further trance of new ordinary shares to raise £3 billion after the announcement of full-year results for 2008.

As part of the fresh share issuance, Barclays said it has agreement in principle with an existing shareholder – which it did not name - to contribute £1 billion in new capital, to be allocated between the component parts listed above.

Barclays said it would not be appropriate to recommend a final dividend payment for 2008.

The bank added that if any of the capital-raising moves do not happen, that Barclays, along with other UK banks, would be able to tap the UK government for capital aid as had been announced by the government last week.

Meanwhile, Lloyds TSB said that because of the "current market environment", Lloyds TSB has agreed with HBOS to revise its previously announced takeover of HBOS. HBOS shareholders will receive 0.605 Lloyds TSB shares for every 1 HBOS share. At the same time, an offer will also be made to HM Treasury to exchange HM Treasury preference shares in HBOS for equivalent preference shares in Lloyds TSB.

In addition, £17 billion of capital will be raised, of which £11.5 billion  will be raised by HBOS and £5.5 billion by Lloyds TSB.