Bradford & Bingley plans to raise £300 million through a rights issue of 82p per share, a 48 per cent discount on yesterday's closing price.
The lender is offering shareholders an additional 16 shares for every 25 they already own in order to bolster its balance book.
The bank has been hit by the volatility in the financial markets following the subprime crisis. Bradford & Bingley reported the value of certain treasury assets fell by another £13 million in April, in addition to £262 million of earlier losses.
In addition, the lender has been affected by the housing market slump.
Bradford & Bingley, Britain's biggest provider of buy-to-let mortgages, insisted that demand in the buy-to-let sector remains high, although market conditions mean that supply is constrained.
The lender said that in raising extra capital, it would be better placed to take advantage of market conditions by writing selective good quality business at attractive margins.
It is also hoping that the rights issue will take its tier 1 capital ratio – an important measure of a bank's strength – into a range of between eight and ten per cent.
Group chief executive Steven Crawshaw said: "The rights issue we have announced today will strengthen our financial standing, reinforcing our position as one of the better capitalised banks in the UK.
"The improved financial strength will ensure we are even better placed to pursue our strategy of providing high quality savings and mortgage products in a competitive market."
Royal Bank of Scotland started the recent run of rights issues in April when the lender asked its shareholders for £800 million.
HBOS quickly followed with a £4 billion rights issue and rumours persist that Barclays is also considering going to its shareholders for extra cash.
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