Alistair Darling gave warning today that the Treasury will require a discount on shares it buys in British banks under the banking sector bailout plan.

The Government is expected to be left with significant numbers of ordinary shares in LloydsTSB, HBOS and Royal Bank of Scotland because the banks' existing investors are unlikely to take up their full allocation.

The Chancellor's’s comments, made in a written statement to Parliament, sent banking sector shares plummeting.

Shares in the Royal Bank of Scotland, in which the Treasury is expected to be left with a majority stake, fell 8 per cent to 41p share. HBOS stock fell nearly 12 per cent to 65.8p a share and LloydsTSB was down nearly 8 per cent to 137.5p a share.

Mr Darling also said in his statement that banks would have no automatic right of access to the Government’s recapitalisation scheme.

He reiterated warnings that access to the bailout fund will depend on credible management, a sustainable business model and a sensible capitalisation plan.

Banks that accept government money will also be required to comply with Treasury conditions on dividends, executive remuneration and continued lending, added Mr Darling.

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