Gordon Brown says he wil announce a new bank rescue scheme on Monday
Prime Minister Gordon Brown has said he will announce a new banks rescue package on Monday aimed at encouraging them to restart lending.
Speaking in Egypt, at a summit on the Gaza crisis, Mr Brown said he hoped the move would make it easier for firms and households to obtain credit.
What the government wanted was to get "the resumption of lending" he added.
A raft of measures is thought to include a bank insurance scheme to cover banks against future bad loans.
Mr Brown said: "We know that the essential problem that has been held back by what has been happening internationally over the last few months is the resumption of lending and the expansion of lending.
"You will see tomorrow there are measures taken that will ensure that banks and non-bank institutions are able to resume lending or expand lending and in some cases to start lending."
We as taxpayers will be insuring some of the bad loans made by our biggest banks, to limit their future losses from their reckless lending
The new state-controlled insurance company would provide cover in the event of bank customers defaulting on their loans.
It would allow banks to pay a fee to have their bad loans underwritten by the taxpayer up to a certain level.
John McFall MP, the Labour chairman of the Commons treasury committee, said the government had little alternative to a new rescue plan.
"We have got to go back again with a bigger sum because, quite frankly, the banks in my opinion haven't been honest enough about the toxic assets on their books."
BBC business editor Robert Peston says the moves are designed to avert a further loss of confidence ahead of gloomy results expected from the big banks.
Robert Peston explains what the announcement will mean
"It'll be designed to give banks and their investors a bit more certainty about the losses they'd face as the recession undermines the ability of many borrowers to repay their debts.
"We as taxpayers will be insuring some of the bad loans made by our biggest banks, to limit their future losses from their reckless lending," he said.
The Treasury is also said to be proposing a swap of preference shares it took in RBS and HBOS for ordinary shares, effectively freeing-up cash for the banks concerned.
Ordinary shares - give you voting rights at general meetings, and pay a variable dividend depending on profits
Preference shares - give you no voting rights, but pay a fixed dividend irrespective of profits
Last October the government bought both types of shares in RBS, Lloyds TSB and HBOS as part of its £37bn bail-out.
These government-owned preference shares mean the banks concerned are committed to paying out a dividend on them.
BBC business correspondent Joe Lynam said: "The banks have long complained that the fees, or coupons, attached to the preference shares they sold to the Treasury, were too high at over £1bn every year.
If the swap is agreed, it could increase the government's stake in RBS to 70%, and in the Lloyds Banking Group to over 50%.
However Lloyds, which begins trading on Monday as Lloyds Banking Group after the merger of HBOS and Lloyds TSB, is said to be unhappy about ceding majority control to the government.
What happened to the £37bn worth of taxpayers' money that's already gone into the banking system?
Vince Cable Lib Dem Treasury spokesman
"I think we are now inexorably heading towards taking over the balance sheets of the big beasts," said Justin Urquhart Stewart, of Seven Investment Management.
Liberal Democrat Treasury spokesman Vince Cable said: "We do need to establish first of all what happened to the £37bn worth of taxpayers' money that's already gone into the banking system."
Ministers hope their measures will persuade banks to start lending again. However, Angela Knight of the British Bankers' Association, said many problems were stopping the banks from doing that.
"Additional capital rules, statements by governments, problems around the world - which are not helping us, us being all the major banks in the UK, who are wanting to lend more to pick up that capacity that's gone away out of the UK market."
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