Chancellor Alistair Darling announced last night that up to £200bn of public money was to be used in the scheme, which will see the government insuring risky loans made by banks during the debt boom for a fee.

The government was also reported to be considering the creation of a "bad bank", buying up "toxic" debt off the banks to improve their balance sheets. This system will see the government only liable for the debt when the debtor defaults.

The bailout came as more negative economic data flooded the system with the Royal Bank of Scotland announcing this morning that it expected to post a £7-8bn loss for 2008 and the hugely influential Ernst & Young Item Club predicting that unemployment will rise to 3.4m by the end of 2011.

David Bunker, a director at Close Print Finance, said that banks remained very cautious despite the previous government bailout.

"No matter how keen the government is for banks to lend, the bank's major shareholders retain a powerful vote," he said.