The government is to inject up to £37bn of new capital into Royal Bank of Scotland, Lloyds TSB and HBOS.
Royal Bank of Scotland (RBS) is to raise £20bn - with the government buying £5bn of preference shares and underwriting £15bn of ordinary shares.
RBS chief executive Sir Fred Goodwin has quit the firm after the move.
A further £17bn of taxpayer cash will be injected into HBOS and Lloyds TSB - Barclays has announced plans to raise £6.5bn without government help.
The announcement means taxpayers will end up owning about 60% of RBS and Banks' share prices fall sharply ...
PM confident on Lloyds HBOS deal ...
UK shares up after short-sell ban ...
Lloyds TSB unveils HBOS takeover ...
Lloyds TSB seals merger with HBOS ... about 40% of the merged Lloyds TSB and HBOS, BBC business editor Robert Peston said.
He said the announcement would "count as perhaps the most extraordinary day in British banking history" and was "an absolute humiliation" for the banks.
As a condition of the deal, the government has insisted that senior directors should get no cash bonuses this year, with future bonuses to be paid in the form of shares - a move aimed at encouraging management to take a more long-term approach.
Dividend cancelled
Lloyds TSB will raise £11.5bn from taxpayers - made up of £8.5bn in ordinary shares and £3bn in preference shares. while HBOS is to get £5.5bn.
Meanwhile, Lloyds TSB has said it has renegotiated the terms of its takeover of HBOS.
A £12.2bn deal was agreed last month, but the value of HBOS shares has since plunged and the extent of the recapitalisation highlights its weakness.
Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every 1 HBOS share. Under the original deal they would have received 0.83 Lloyds TSB shares.
Barclays has said it is to raise £6.5bn of new capital. The bank is to raise the money from shareholders and investors, rather than going to the government - meaning it will not have the government influencing its day-to-day decisions.
Barclays also said it would scrap its final dividend payout for 2008, saving it £2bn.
(BBC)
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