The Government forced banks to ask for more money from taxpayers at the weekend by increasing the banks’ funding requirements for the second time in a week, it emerged last night.

Last week the Government said that banks should increase their Tier 1 capital — a measure of financial strength — to an average of 10 per cent. The average in UK banks is currently 9 per cent.

But a source close to the deal said that the plunge in bank share prices last week had prompted the Treasury to ask at least one bank to boost its Tier 1 capital even more.

In addition, banks were understood to have been encouraged to ask the Government for more money than they needed, in order to bolster them further against future economic shocks and the looming recession.

While the Government said initially that it expected banks to meet the new capitalisation targets by Christmas, the plunge in share prices at the end of last week speeded up negotiations.

Royal Bank of Scotland (RBS), Halifax Bank of Scotland (HBOS), Lloyds TSB and Barclays held weekend talks with Treasury officials, hammering out the terms of the bailout deals in which the Government pledges to buy more than £35 billion in bank shares.

RBS is understood to be seeking £15 billion, more than the bank is currently worth. When the markets closed on Friday, it was worth £11.8 billion. HBOS is seeking up to £10 billion, Lloyds TSB will raise up to £5 billion and Barclays £7 billion. Barclays is understood to be attempting to raise financing from private investors, including sovereign wealth funds.

HSBC ruled itself out of the bailout plan last week, injecting £750 million into its UK business. Santander, which owns Abbey, also injected £1 billion into its British unit last week.

Under the terms of the deal, banks that cannot raise all the capital they need via a rights issue — asking shareholders for more money in return for new shares — can count on the Government to step in and buy the leftover shares. This will leave taxpayers with a stake in the institution.

Initially, the Government said that it would buy only preference shares. These offer a fixed dividend payment and take precedence over all other types if the company goes bust.

But preference shares do not count towards Tier 1 capital, so banks are keener to issue ordinary shares. The dividend payments on ordinary shares rise and fall with the fortunes of the company, making them a riskier prospect for the taxpayer.

It is likely that the Government will not find out what the final bill for the bank bailout is for several weeks, as all banks’ shareholders must be contacted before a rights issue can be made.

Which share deal?

Ordinary shares
The common or garden shares that most investors own. They usually pay a dividend that rises and falls with the company’s fortunes. Investors have a say in how the company is run

Preference shares
Investors receive a fixed dividend so do not lose money if the ordinary share dividend is cut. If a company goes bust, preference shareholders go to the front of the queue to get their money back. But they have no say in how the company is run

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