MPs will discuss the Treasury's Banking Bill the day after a £37bn taxpayer lifeline was thrown to three of the UK's biggest banks in a bid to end the sector's turmoil.

In what Prime Minister Gordon Brown called an "unprecedented but essential" agreement, the Government announced it would take "significant" stakes in Royal Bank of Scotland, Lloyds TSB and Britain's biggest mortgage lender, Halifax Bank of Scotland.

The high-stakes bail-out, approved by Brussels last night, restored some confidence in London shares with the FTSE 100 Index closing more than 8 per cent higher.

But shares in the three banks fell heavily, reflecting the fact that existing investors will see their holdings diluted and dividends curbed. HBOS dived 28 per cent, Lloyds 14 per cent and RBS closed 8 per cent lower.

The state investment involves tough conditions, including curbs on management bonuses and a pledge to ensure the availability and supply of lending to small businesses and homeowners.

The deal quickly claimed the UK's first major scalps of the banking crisis with the chairmen and chief executives of RBS and HBOS announcing they would be standing down.

Under the plan, £5bn will be injected into Royal Bank of Scotland by the Treasury, with a £15bn share issue by the bank also guaranteed by the Government.

Lloyds TSB and its proposed new partner HBOS will receive up to £17bn of emergency funding, while the price Lloyds TSB is paying for its rival is also being lowered.

The Government could theoretically end up owning about 60 per cent of RBS and 43 per cent of the combined Lloyds TSB-HBOS entity, depending on how many other investors choose to buy the banks' new shares.

Privately ministers accept they will own "significant" stakes in the banks, helping to control remuneration and dividend policy until the investments are sold and appointing three directors to the RBS board and two to Lloyds TSB.

The banks will stop paying dividends to shareholders until they are in a position to pay back the Government.

Barclays said it was not turning to the Government for emergency funding, announcing instead plans to raise more than £6.5bn from investors to help shore up its balance sheet.

Chief executive John Varley warned that rival banks in need of government capital injections would be "constrained in their strategic and operational flexibility".

Conservative leader David Cameron said the package was "painful and expensive" and represented "the day that the bills came in for a decade of too much borrowing".