The government has taken a majority stake in Lloyds after offering the bank increased support under its new asset protection scheme.

Lloyds will receive £260 billion in funds, which will act as insurance for bad loans, and in return will hand over 22 per cent more of its equity to the taxpayer. The government’s share in the troubled lender now stands at 65 per cent.

Under the agreement, the troubled lender will also set aside £28 billion in new lending to the economy.

Commenting on reports that the Government is to increase its stake in Lloyds Banking Group taking it into majority public ownership, shadow chancellor George Osborne said:

“This massive second bail out is proof that Gordon Brown’s first bail out failed, and the real test of it will be if credit starts flowing again in our economy. It is also clear that the takeover of HBOS, which the prime minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership,” he added.

The move comes after the government offered £325 billion in funds to the Royal Bank of Scotland (RBS) under the same scheme. Previously, the government owned 69 per cent of RBS and its share in the bank is expected to rise to up to 95 per cent after the deal.

Lloyds Banking Group’s finances have buckled under the strain of losses caused by its government-backed merger with HBOS in October.
The combined entity announced a loss for 2008 due to a £10.8 billion pre-tax loss at HBOS. Lloyds itself made a profit of £807 million over the same period

The government first took a stake in Lloyds TSB, RBS and HBOS in October last year when it injected £37 billion in emergency funds.