A new era in British banking has been ushered in after the taxpayer took an unprecedented £37bn stake in the nation's high street lenders.

The policy of public ownership means a commercial "Bank of Britain" - which includes stakes in the Royal Bank of Scotland, HBOS, Lloyds TSB as well as the already nationalised Northern Rock and Bradford and Bingley - now holds 45% of the country's mortgages.

Under the Treasury's historic plan unveiled yesterday, £5bn of public money will be injected into RBS with a £15bn share issue guaranteed by the UK Government.

Lloyds TSB and HBOS will receive up to £17bn of emergency funding while the price Lloyds TSB is paying for its rival is being lowered. Theoretically, this means the taxpayer could end up owning 60% of RBS and 43% of the combined Lloyds TSB-HBOS bank.

Privately, ministers accept the UK Government will own "significant" stakes in the banks, helping to control pay and dividend policy until the investments are sold; hopefully, at a healthy profit.

Once again portraying himself and his government as the "rock of stability", Gordon Brown made clear the bailout was "driven by our values" and the need to restore confidence.

The Prime Minister told reporters at a No 10 press conference: "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."

The announcement of the bailout details produced relief and hope in the stock markets where only days before there had been panic and fear.

The FTSE-100 index closed at 4257 up 325 points, a rise of 8.3%, adding £80bn to the value of leading companies and helping to reverse some of the previous losses.

The Dow Jones was also upbeat that the global response to the crisis could work, closing at 9388, up 936 or 11%.

Yet in London, shares in the three banks involved in the rescue package fell once again, evidence that existing shareholders will see the value of their investments diluted. HBOS slumped 28%, Lloyds 14% and RBS 8%.

The humbling of the big banks saw the immediate departure of Sir Fred Goodwin, RBS chief executive, who last year earned £4.2m and in April asked shareholders for £12bn to shore up the group's balance sheet.

Sir Tom McKillop, RBS chairman, will retire from the board next April. He insisted the departure of Sir Fred, who will be replaced by Stephen Hester, chief executive of British Land, was a board decision and not down to government pressure.

Andy Hornby, HBOS's chief executive, and Dennis Stevenson, its chairman, are also to step aside when the bank is taken over.

Chancellor Alistair Darling said all four men had done "the right thing" in waiving their golden goodbyes - worth an estimated £2m in the case of Sir Fred and nearly £1m in that of Mr Hornby.

The taxpayer-funded rescue package came with strings attached, resulting in an end this year to cash bonuses for senior managers and a pledge to ensure the availability and supply of lending to small businesses and homeowners.

Yet the inter-bank lending rate - a lowering of which is seen as essential for making loans cheaper - only fell from 5.81% to 5.6% in light of the bailout and is still more than 1% above the Bank of England 4.5% base rate.

Elsewhere, Barclays said it had decided not to go to the UK Government for emergency funding, announcing instead plans to raise more than £6.5bn from investors.

It had also decided not to pay a final dividend for 2008, saving it £2bn.

At Westminster, Mr Darling made clear ministers did not want to run banks but to help rebuild them. RBS and the merged Lloyds TSB and HBOS, he explained, would be run "at arm's length" with a view ultimately to returning them to the private sector. Taxpayers would have representatives on the boards.

The Chancellor insisted the rescue package represented a "significant step" in restoring much-needed confidence to the banking system.

George Osborne, his Conservative shadow, admitted the bailout was the only option available but insisted: "This is not a moment of triumph for the government for it is the British people who have now been landed with the bill for the boom that turned to bust."

Earlier, David Cameron, on a visit to the HBOS offices in Halifax, said the bailout had been necessary but expensive. "In many ways, it's the day the bills came in for a decade of too much borrowing."

In Edinburgh, First Minister Alex Salmond welcomed the bailout, saying the public money should be regarded as an investment, which would be redeemed in due course.

Jim Murphy, the Scottish Secretary, who met business and trade union leaders in Scotland yesterday and briefed Mr Salmond on the bailout, also welcomed it, saying the Chancellor had "saved Scotland's historic banks".