Royal Bank of Scotland (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.

High street rival Barclays said it had arranged its own £6.5 billion deal with existing shareholders and would not be turning to the Government.

Prime Minister Gordon Brown said the bail-out was "unprecedented but essential for all of us".

"In extraordinary times, with financial markets ceasing to work, the Government cannot just leave people on their own to be buffeted about," he said.

"For savers, for small businesses, and for homeowners, we must in an uncertain and unstable world be the rock of stability on which the British people can depend."

As part of the deal, 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.

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.

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 said.

"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."

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 said.

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.