Gordon Brown and Alistair Darling were tonight meeting with finance chiefs to discuss the recapitalisation of the UK banking system after a turbulent day on the markets which also saw British savers hit by the collapse of the Icelandic bank Icesave.

The Prime Minister and Chancellor will meet the Mervyn King, Governor of the Bank of England and Lord Turner of Ecchinswell, Chairman of the Financial Services Authority at 5pm.

No 10 denied that it was “an emergency meeting” and had been in the diary for sometime. But officials had to admit they had not given notice of the meeting at an earlier briefing today.

This suggests that Mr Brown and Mr Darling have been convinced that they must show the market that they are at least close to an announcement in order to restore some calm.

On another rollercoaster day for the markets, banking shares were badly hit as a report leaked out from top-secret talks between the banks and the Treasury in Downing Street last night.

HBOS shares were down 41.5 per cent at 94p, Royal Bank of Scotland was below £1 at 90p, 39 per cent, down, while Lloyds TSB fell 12.9 per cent, or 33.5p, to 225p. Barclays was 9 per cent down at 285p. HSBC was the only big bank to rise by 19p, or 2 per cent, to 901.25p.

The Government is furious with the banks for apparently divulging details of their meeting with the Chancellor at which they asked him to speed up the injection of taxpayers money into their coffers.

Mr Brown’s spokesman said the Government would not be engaging in irresponsible speculation, strongly implying that the banks had.

Today shares in RBS – which already fell 20 per cent yesterday – were hardest hit, with £10 billion wiped off their value this morning. The shares later recovered slightly, rising back above £1, although they remained 25 per cent down on yesterday.

In Europe, the 27 member states today agreed to more than double the minimum level of bank deposit protection in Europe to €50,000, and the US Federal Reserve announced that it would start making loans directly to businesses to help them with short-term funding difficulties.

Meanwhile, Icesave's 300,000 British now face a struggle to extract their cash, after withdrawals were blocked this morning when, Landsbanki, the Icelandic parent bank, went bust and was nationalised.

Landsbanki is one of a handful of European banks operating in Britain which has the so-called passport exemption - meaning that when the bank fails, the first €20,000 (around £16,000) needs to be reclaimed from the Icelandic compensation system, not the UK system.

If Iceland's scheme lacks the money to fulfil its obligations, the Icelandic Government steps in, and if it lacks the cash then other Nordic countries are supposed to meet the shortfall, under a reciprocal arrangement.

Iceland has been battling to stave off national bankruptcy after its banks took on massive debts in expanding overseas, far exceeding the country's gross domestic product.

In a surprise move, this morning the Icelandic central bank announced that it hoped to arrange a €4 billion loan from Russia to stave off financial meltdown. Officials will travel to Moscow tomorrow for talks.

Last week Glitnir, Iceland's third largest bank, also had to be part nationalised. Kaupthing, which also has tens of thousands of British savers, and is the last remaining Icelandic bank in private hands, was reported today to have accepted a €500 million loan from the central bank but says its financial position is strong.

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