UK bank bail-out to take big stakes in top banks

By Jodie Ginsberg and Steve Slater

LONDON (Reuters) - Britain waded in with 37 billion pounds ($64 billion) of taxpayers' cash to bail out three major banks on Monday, in a move that could make the government their main shareholder.

In return the banks will be forced to curtail the bonuses that many believe encouraged a risk-taking culture that precipitated the global financial crisis. They will also have to scrap dividends.

Under the UK plan, Royal Bank of Scotland (RBS.L) will boost its capital by 20 billion pounds, issuing 15 billion pounds' worth of shares underwritten by the state, and 5 billion pounds in preference shares directly taken by the government.

HBOS HBOS.L and Lloyds TSB (LLOY.L) will also participate in the scheme "upon successful merger."

Finance Minister Alistair Darling said extreme times called for extreme measures and that he was prepared to make even more money available if necessary.

"It's necessary because we are going through quite extraordinary circumstances the world over, and I'm determined to do everything we can to stabilize our banking system and make it stronger," he said.

"And in return for it, of course, there will be restrictions on what happens in boardroom pay, and we're also getting guarantees in relation to increased lending to businesses, as well as to mortgages."

BROWN BENEFITS

The measures are being echoed across Europe as countries try to adopt a common approach to avoid a meltdown in the financial system and its knock-on effects on the global economy.

Prime Minister Gordon Brown said he believed Britain was taking the lead in dealing with the crisis.

"This is perhaps the first government to do what I believe a large number of governments are going to do over the next few days," he told a news conference.

In a speech later to City executives, Brown said the world's leaders needed to reform the financial system with the kind of courage and foresight their predecessors had shown when drawing up the post-war financial order in the 1940s.

"We must now reform the international financial system around agreed principles of transparency, integrity, responsibility, good housekeeping and co-operation across borders," he said at the London headquarters of Thomson Reuters.

Brown's handling of the financial crisis appears to be rebuilding his reputation with voters.

"I'm quite glad Brown's in charge because he seems to know more what he's doing than anyone else," Henry Gogherty, a consultant from London, told Reuters.