George Osborne reacts to bank bailout

Gordon Brown called an end to the days of overblown City salaries today as he pumped £37 billion of taxpayers' money into the partial nationalisation of three of the country's biggest banks.

Under the emergency refinancing, the three banks participating in the scheme – Royal Bank of Scotland (RBS), HBOS and Lloyds TSB – have agreed to scrap boardroom bonuses for the current year and tie future rewards to performance. Nor will they pay out any dividends until the Government's interest in preference shares has been fully repaid.

"Our action is driven by our values," the Prime Minister said today. "For this Government, and I believe the whole country, the guiding idea is fair reward for hard work, effort and enterprise, not incentives for irresponsibility or excessive risk-taking for which the rest of us have paid."

Shares in London rebounded sharply, with the FTSE 100 index of leading companies soaring by more than 200 points, or over 5 per cent, after last week's catastrophic trading. The major European bourses were even more buoyant after yesterday's agreement.

Wall Street stocks also rose sharply on the back the news from Europe. The Dow Jones industrial average rose by 410 points to 8,861.06 in early trading, after falling 18 per cent last week.

This morning's operation came just five days after the Alistair Darling, the Chancellor, announced that up to £50 billion of public money would be spent shoring up stricken banks, with £450 billion more spent on liquidity funding and loan guarantees.

Eurozone leaders agreed to adopt a similar approach at a weekend summit and Chancellor Merkel today confirmed a €480 billion (£378 billion) package to save German banks from collapse. The plan mirrors the UK scheme in providing both fresh capital and loan guarantees.

Announcing the package, Mrs Merkel complained of market excesses and called for firmer regulation of financial markets, a move echoed by the Prime Minister as he promised to push for "a new Bretton Woods" – the 1944 conference which set the framework for international trade and finance after the Second World War.

But even if he was conscious of the historic nature of the bailout, Mr Brown insisted that the injection of government cash into the banks did not amount to nationalisation of the kind seen in other industries in the post-War period.

"This is not standard public ownership," he said. "This is the Government buying shares, allowing the banks to be run commercially, making sure that we can encourage other investors into the banking system, then – because our holdings are temporary – being ready to sell them when the banks are strengthened.

"I think you will find over the rest of Europe over the next few days exactly the same thing will happen."

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive