The deal, which was finalised late last night, is in addition to £200bn of liquidity that will be made available by the Bank of England for short-term borrowing.
In a further move, the Government is providing temporary guarantees for money that banks borrow from each other in the wholesale markets, with take up expected to be an additional £250bn.
The eight banks and building societies that have so far confirmed their participation in the capital element of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide, Royal Bank of Scotland and Standard Chartered, but the Treasury has said other banks will be able to apply for inclusion.
The Government will get preference shares in exchange for the funding it provides.
The banks concerned have committed to collectively raising capital by £25bn either through conventional fund-raising or in exchange for the Government taking preference shares in the bank.
After this initial capital raising, the Government says it stands ready to provide a further £25bn for institutions at their request.
The Government will also provide a guarantee on the money that banks borrow from each other for a fee in a bid to restore confidence in the wholesale markets.
The measure is designed to help institutions meet their refinancing obligations as they fall due and would use unsecured debt instruments of varying terms up to three-years with a guarantee provided by a Government-backed English company.
The Prime Minister Gordon Brown has said there are a number of caveats built into the programme, including conditions on dividend payments and bankers’ remuneration, and that on commercial terms the Government expected “to be rewarded”.
Gordon Brown said this morning that “extraordinary times” call for “bold and far reaching solutions”.
He said: “The global financial market has ceased to function putting in danger the necessary flow of money to business and families on which all of us depend in our daily lives.”
He added: “Our stability and restructuring programme is comprehensive, it is specific and it breaks new ground. The programme is designed to restore confidence and trust in the financial system and, more than that, to put the British banking system on a sounder footing and to build strength for the future so that it can support jobs and prosperity right across our economy.”