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The government has announced a second bailout of Britain's major banks, four months after it injected £37 billion into the sector.

The new plans, confirmed by Gordon Brown and Alistair Darling at Downing Street this morning, are aimed at freeing up blocked credit and encouraging the banks to start lending again.

"We will do everything to maintain stability, support economy and expand lending," Mr Brown said.

"I will not sit idly by because of the mistakes of a few bankers.

"When the private sector fails, someone has to step in and we have stepped in. We have to act as there is no other player in the market."

The prime minister added there would be no return to the mistakes of the past over irresponsible lending.

He said the actions were in the interest of mortgage holders and businesses.

"The world is at risk of a damaging spiral – damaging to jobs and businesses everywhere in the world," Mr Brown said.

He explained banks around the world were retrenching and focusing on domestic economies - so international action was needed - especially as much as 40 per cent of UK borrowing came from abroad.

Mr Darling said: "It's a huge problem to get that lending starting again."

Further protection for banks against toxic assets in the form of a new insurance scheme is also part of the bailout, as is a £50 billion purchase of the worst debt via the Bank of England - taking up corporate bonds, commercial paper, syndicated loans and a limited range of asset-backed securities.

"Each bank will have to reach judgement if it wants to take advantage of the insurance," Mr Darling said.

"If so they have to sign up to agreements. The object of this is to get money to individuals and people.

"I spoke to most chairmen and chief executives of banks over the weekend. All said they supported what we are trying to do."

The Treasury claims the insurance scheme will "reduce banks’ uncertainty about the value of past investments, so providing them with greater confidence to lend in the future to creditworthy businesses, homeowners and consumers".

The government will also be pushing banks to sign up to "specific and quantified lending commitments" for lenders to increase loans to consumers and businesses that will be "binding and externally audited".

Mr Brown and Mr Darling also confirmed an increase in the government's stake in Royal Bank of Scotland as £5 billion worth of preferred shares are converted to ordinary stock.

The prime minister said: "I am angry at RBS and what has happened – these were irresponsible risks taken with people's money."

In particular he hit out at the losses made from the US subprime mortgage market and the purchase of Dutch bank ABM Amro.

"People have right to be angry," Mr Brown said.

This would take the government's holding in RBS to 70 per cent and allow RBS to cease paying the high premium on the preferred stock so it can focus on lending again.

RBS will make an extra £6 billion of lending available.

Mr Darling said the help had to come at a cost to banks - with increased lending forced.

The prime minister said he "utterly disputed" he was offering banks a blank cheque.

The chancellor, meanwhile, told reporters: "At every stage we look after the taxpayer interest.

"If we don’t do anything, banks will not lend to each other and the situation will be much worse.

"The cost of doing nothing is so much more."

It was also confirmed that Northern Rock, nationalised last year, will be repaying a government loan at a slower rate – no longer pushing customers to remortgage with other lenders.

"It is not appropriate for Northern Rock to continue shrink," Mr Darling said.

"It is right now for them to maintain lending in housing market. Basically telling people to go and telling them to go to a market where there is no money available isn't right."

He said it was right at the time of privatisation.

The Treasury insisted the impact of the bailout on the public purse would be "mostly temporary".

"Investments will be held for no longer than is necessary to ensure stability and protect taxpayer interests; liabilities will be backed by assets; and fees will be charged for relevant schemes," a statement said.