Q&A: The British Bank rescue

What is the Government doing?

Chancellor Alistair Darling has announced a wide-ranging package of measures to tackle the crisis in the financial system.

The Treasury will make £50 billion available for banks to strengthen finances rocked by the credit crunch.

It will also provide - for a fee - guarantees of around £250 billion on loans between banks, which it hopes will ease the pressure in frozen money markets.

The Government meanwhile has expanded the size of its Special Liquidity Scheme - which allow banks to swap risky assets for safer Treasury bonds - to £200 billion and is accepting a wider range of collateral in its funding auctions.

How much taxpayers' money is at risk?

At least £50 billion - from spending money on stakes in UK banks - although the Government could eventually make a profit on this if markets recover. This works out at £820 for every man, woman and child in the UK.

Guarantees over inter-bank lending are potentially a much bigger exposure, with the Government estimating the take-up from banks of around £250 billion. The taxpayer will not be exposed on this unless banks default on lending.

Why is the Government acting now?

The banking system is arguably facing its biggest crisis since the Great Depression. Lending between banks has virtually ground to a halt because of the contagion which has spread across the globe since the credit crunch hit in August 2007.

Since the collapse of Lehman Brothers in September the crisis has reached a new pitch with nationalisations and bail-outs in Europe, the US and the UK's Bradford & Bingley.

Will it work?

The plans have been welcomed as a comprehensive approach to the problem, but at this stage it is too early to say.

Inter-bank overnight lending rates fell back sharply today by around 0.75 per cent, suggesting some easing in money market conditions.

But the rate at which banks lend to each other for three months reduced only marginally - indicating longer-term uncertainties remain. Volatile stock markets fell after the plan was announced.

Will there be an impact on the public finances?

If the £50 billion injection is financed with public borrowing, some experts have warned that this would take the UK's net borrowing requirement well above £100 billion this year - almost three times official estimates.

This will deal a further blow to finances reeling from an economic slowdown and increase the chances of tax rises and spending cuts.

What other action is being taken?

The Bank of England slashed interest rates by 0.5 per cent today in tandem with five other central banks - the first coordinated emergency action since November 2001. China also lowered interest rates.