Royal Bank of Scotland was effectively nationalised today and its chief executive and chairman are to stand down as a dramatic rescue of British banking got under way after the Government unveiled a £37 billion bail-out for three of Britain's biggest banks.

RBS is to raise £20 billion of new capital through a Government-guaranteed £15 billion share issue and a £5 billion Government cash injection. Lloyds TSB is also to raise £5.5 billion of new capital, and said it was revising the terms of its acquisition of rival HBOS.

As part of the unprecedented deal, Edinburgh-based RBS's under-fire boss Sir Fred Goodwin, who asked investors for £12 billion earlier this year to help shore up the group's balance sheet, is also to step down.

It also emerged that HBOS will raise £11.5 billion of additional capital, including £3 billion through preference shares with the UK Government.

Barclays said it is not turning to the Government for emergency funding, unveiling instead plans to raise more than £6.5 billion from investors to help shore up its balance sheet.

The high street bank also said it will not pay a final dividend for 2008, saving the group £2 billion.

The Government's deal has been greeted with early enthusiasm by the markets, with the FTSE-100 index at 9.15am up 242.14 at 4174.20. However, both RBS and HBOS shares were down 28% by mid-morning.

As part of the plans, the Government has pledged to review the remuneration of senior executives - both for 2008, when it expects no cash bonuses to be paid to board members, and for long-term incentive schemes.

The Government will also have a say on the appointment of new independent non-executive directors and on dividend policy.

Banks have also been told to commit to offer competitively-priced lending to homeowners and to small businesses. They will also offer support for schemes to help people struggling with mortgage payments to stay in their homes.

RBS chairman Sir Tom McKillop is also to step down next April.

He said: "We regret having to raise new capital but we believe that decisive action is necessary in these unprecedented market conditions."

After the £20 billion of new funds, RBS will be "one of the best capitalised banks in the world", Sir Tom said.

Sir Fred is to be replaced by Stephen Hester, currently chief executive of British Land.

RBS's chairman of global markets, Johnny Cameron, will leave the board immediately.

HBOS and Lloyds said that, once their merger goes through, HBOS' chairman and chief executive would both be leaving the group.

Chancellor Alistair Darling said that the Government was injecting "very substantial sums" into the banks in order to stabilise the system.

"It is necessary because we are going through quite extraordinary circumstances the world over," he told GMTV.

"I believe that what we are doing will help, it will go a long, long way to reassuring people.

"There is a lot of turbulence to go through yet, there are a lot of bumps along the way, but I believe that this first step will help in two respects.

"First, it makes our banks strong. Secondly, of course, it is beginning the process of making lending easier."

Mr Darling said the Government was appointing three directors to the RBS board and two to Lloyds TSB.

"There will be restrictions on what happens on boardroom pay and we are also getting guarantees in relation to increased lending to businesses, as well as to mortgages too," he said.

We regret having to raise new capital but we believe that decisive action is necessary in these unprecedented market conditions Sir Tom McKillop

The combined HBOS and Lloyds TSB entity is expected to be around 40% Government-owned once the merger is complete. RBS will be in the region of 60%, although this depends on the take-up of shares.

HSBC has already announced separate capital-raising measures in order to boost its UK operation. The Government already controls two significant mortgage lenders, Northern Rock and Bradford & Bingley.

Today's developments come after EU leaders signed up to to Gordon Brown's blueprint for recovery.

The announcement, after an emergency summit of eurozone countries in Paris yesterday, was seen as a significant personal victory for the Prime Minister.

Opposition from senior figures such as German Chancellor Angela Merkel had stymied joint progress before. But further market dives appeared to focus minds, and the group pledged to guarantee lending between banks, and step in with state funding to prevent major financial institutions collapsing.

The US came on board with similar action over the weekend, after Mr Brown and Chancellor Alistair Darling set out their proposals last week.

Mr Brown - who, in a break with precedent, attended the Paris summit despite Britain not being in the single currency - praised the eurozone measures as the best way of restoring "confidence" to the shattered international system.

"The difficulty that we have got at the moment is in restoring confidence in the banking system. What is missing is confidence itself," he said.

"I believe that the action we have taken in Britain will restore that, and we will see, over the next few days, worldwide action that will also see confidence restored."

The International Monetary Fund also expressed hope that the situation would be stabilised by the EU move.

If no outside investors opt to take any of RBS's £15 billion new shares, the Government will own them and end up with a 57% stake in the bank.

Bur Sir Tom said: "That seems a very unlikely scenario.

"We anticipate some considerable interest at the share price as it ended up on Friday. This is clearly a very attractive deal.

"Not everyone will be able to buy in, but I would imagine there will be significant interest in this."

RBS shares plunged 61% in value last week amid the market turmoil, and are worth around a seventh of their value a year ago.

Sir Tom added: "Of course it is immensely regretful that we are coming to shareholders to raise funds again.

"This is something that we certainly feel bad about. Shareholders have lost considerable value in recent months.

"We at RBS have been adversely affected by the uncertainty in the market, more so than many."

Mr Darling said there would be no boardroom bonuses paid in those banks in which the Government took shares.

"This comes with strings attached in relation to bonuses. They won't be paid this year," he told BBC Radio 4's Today programme.

He said it was important that other governments around the world now took similar steps to protect their banks.

"We are living in extraordinarily turbulent times," he said.

"As long as governments the world over are prepared to take decisive action and to take action quickly as we have done, I think there are good reasons to believe that this will be seen as a very significant step along the way to getting through this.

"There is a lot more to go through. It is a part of a process. There will be other things that we need to do. Other things that other governments need to do as well.

"This is pretty significant, it is pretty important, but it has got to be followed through in other parts of the world as well."

The bank bosses who are standing down have waived their contractual entitlements, the Chancellor told BBC Radio Scotland.

"I think they have decided to do the right thing there," he told Good Morning Scotland.

Mr Darling also said the Government would remain a shareholder in the banks "for some time".

"Significant" stakes were taken in RBS and merger-listed HBOS and Lloyds to make them stronger and see them through "this difficult period".

"We have made very substantial sums available - £20 billion to RBS, about £17 billion to Lloyds and HBOS combined," he said.

"In return for that, we will be taking directorships.

"There's going to be change at the top of RBS, there will be changes at HOBS too."

Mr Darling went on: "There will also be restrictions on the bonuses that can be paid to people.

"And on top of that, we are insisting that as part of those conditions we get more lending into the system to business and also in relation to mortgages.

"So the taxpayer has extracted a price for this support."

Of the departures of the RBS chief executive and chairman, he said: "The board themselves decided a while ago that if it came to this, if it came to them having to take very substantial sums from the Government, there would be changes at the top."

The bank had gone for expansion in the global markets "just at the time that things turned sour".

The Chancellor said the banks would be run "at arm's length" from the Government, and ministers would not be involved in day-to-day decisions.

He said: "Frankly, the UK Government had to act - because we are the only organisation that is large enough and sound enough to underwrite and support both these Scottish banks."

Of the departing bank chiefs, he said: "In relation to both these banks, they have waived their contractual entitlement and they will go.

"I don't want to get drawn into their own personal arrangements."

But he added: "I think they have decided to do the right thing there."

It has also been agreed that there would be no bonus payments this year, said Mr Darling.

And he said he expected the Government to be major shareholders "for some time".

"At this stage it's not possible, and it would not be sensible either, to put an end date on it.

"What is important is that we've taken this decisive action, we have taken it quickly, and I will continue to do whatever is needed to be be done, and will do it for as long as it takes, to get through truly extraordinary circumstances here and the world over."

Mr Darling made clear that the Government would not be involved in the day-to-day running of RBS or Lloyds TSB.

"I fully intend that these two banks will be run on a commercial basis at arm's length from the Government. Ministers cannot start becoming involve in day-to-day decisions," he said.

He said he believed that the money injected by the Government would eventually be repaid.

"There is every reason to be confident as we get through this that the British taxpayer will get its money back," he said.

"Ultimately we want to return these banks to the private sector."