Gordon Brown declared today that the Government would be the "rock of stability" amid the global financial turbulence as it injected £37bn of taxpayers' money into Britain's troubled banks.
The Prime Minister told a Downing Street news conference that the action the Government was taking was "unprecedented but essential".
"In extraordinary times, with financial markets ceasing to work, the Government cannot just leave people on their own to be buffeted about," he said.
"For savers, for small businesses, and for homeowners, we must in an uncertain and unstable world be the rock of stability on which the British people can depend."
With Chancellor Alistair Darling at he side, Mr Brown attacked what he described at the "excessive and sometimes undisclosed risk-taking" by financial institutions, sometimes without adequate capital, which led to the current crisis.
The Government is taking a £20bn stake in Royal Bank of Scotland with a further £17bn for Lloyds TSB once it is merged with HBOS.
"At this time of uncertainty, we want British banks to be able to lead the world and to be as strong and as well-capitalised as any across the globe," Mr Brown said.
"The Government will not be a permanent investor. Over time we intend to dispose of all these investments in an orderly way. In the meantime, our shares will be held at arm's length."
Mr Brown said the banks which are receiving injections of state cash will have to comply with conditions "to ensure that the taxpayer gets a fair deal" and "bring an end to rewards for failure".
The boards of these banks will receive no cash bonuses this year, said Mr Brown, adding: "Going forward, rewards will only be based on performance and long-term value creation."
He said: "Our action is driven by our values. For this Government, and I believe the whole country, the guiding idea is fair reward for hard work, effort and enterprise, not incentives for irresponsibility or excessive risk-taking for which the rest of us have paid."
And the PM made clear: "There will be no dividends paid until the Government's preference shares have been fully redeemed."
The Government has secured "strong commitments" that the banks will restore lending at competitive rates to individuals and small businesses. And ministers will appoint independent non-executive directors to the boards of those banks receiving state capital injections.
Mr Brown said: "Extra liquidity... recapitalisation, the resumption of medium-term lending - these are the measures we need to ensure the return of good banking and ensure the safety and stability of the public's savings."
The PM revealed that he spoke to US President George Bush last night after returning from Paris and agreed "the common ground for action on our two continents".
He said he anticipated countries across the eurozone making similar announcements over the coming days and said he "warmly welcomed" the willingness of EU countries to co-ordinate action.
"The events of the last few weeks have made clear once and for all that these are global problems that require global solutions," said Mr Brown.
"I believe that only by global action can we fully restore the confidence needed to build the international financial order."
It would have been a "failure of leadership" if the Government had not stepped in vigorously at this point to restore stability, said Mr Brown.
"If we pull together as a country, we can come through these times stronger and not weaker," he said.
"We are showing today that we are willing to invest assets our country has to strengthen the banking system but the most precious asset of all is something that, if lost, can only be restored not by words but by actions, and that is the asset of trust and confidence.
"Confidence about the future is needed for confidence today.
"It is to build the trust and confidence we need that is the purpose of today's far-reaching announcement."
Mr Darling said the Government had made a "significant and substantial" investment in RBS and HBOS/Lloyds TSB, adding: "We are doing that because we need to stabilise the situation and strengthen the position of British banks. That is absolutely essential."
He added: "We are doing everything that is necessary here. We are doing it decisively and we are doing it quickly. But that also needs to be replicated in other parts of the world."
From discussions he and Mr Brown had with partners at the IMF, World Bank and EU over the weekend, it was clear that "right across the world, governments are now ready to do whatever it takes, whatever is necessary, to stabilise and strengthen the banking system and help us deal with the uncertainty and turbulence," said the Chancellor.
He added: "The key here is restoring confidence and trust and I believe this is a significant and necessary step along the way to doing that."
In a speech to City leaders, Mr Brown reiterated his call for far-reaching reform of the international financial system to ensure that there can be no repeat of the current crisis.
"This cannot simply be a short-term rescue to paper over the cracks. Only a surgical approach that gets to the root of the problem will now work to ensure that the problems do not return," he said.
The Prime Minister said the international financial system was now so interlinked that the problems could not be resolved by any one nation acting alone.
"The global financial system is too clouded with opacity, conflicts of interest, irresponsible risk-taking," he said.
"A focus on short-term rewards created risks for us all as money was lent that had almost no chance of being repaid and was then re-packaged and sold on.
"Depositors and shareholders wrongly thought that banks would be protected by complicated but insufficiently understood financial engineering to spread the risks across the deep global capital markets.
"In the end, financial engineering will not work if people cannot see or do not understand the nature of the assets and the risks they are taking on."Reuse content