Alistair Darling was last night considering a dramatic tax payer-funded recapitalisation of Britain’s banks, amid signs of crossparty and central bank support for an effective part-nationalisation of the sector.

The chancellor said yesterday he was 'looking at some pretty big steps which we would not take in ordinary times'. Government officials say these include a contingency plan for the taxpayer to inject capital into ailing banks.

Although the Treasury said no decision had been taken to activate any contingency plan, it would not rule out a voluntary bank recapitalisation scheme. 'It is a pretty fast-moving situation,' said one official.

Financial Times