Some of the most senior figures in British banking fell on their swords yesterday as the Government set out the ground rules for a new lower-paid and more heavily regulated era.

Sir Fred Goodwin, a towering figure in world banking, and a hero to many in the Scottish business community, announced that he would soon be quitting as chief executive of Royal Bank of Scotland.

Andy Hornby and Lord Stevenson of Coddenham, respectively chief executive and chairman of HBOS, also announced plans to leave once its takeover by Lloyds TSB is completed.

The three men have waived compensation payouts of, respectively, £1.2 million, £975,000 and £740,000.

Sir Tom McKillop, chairman of RBS, will leave at the time of the annual meeting next April, amid speculation that he would have gone sooner but for the absence of a credible candidate to succeed him.

Johnny Cameron, RBS’s chairman of global markets, is also standing down immediately.

The departures came as the Treasury gave details of how it was injecting £37 billion of fresh capital into the three banks to beef up their thinning balance sheets. The Government could end up owning more than 60 per cent of RBS and up to 43.5 per cent of the combined Lloyds/HBOS.

In return, the Treasury said, the banks had agreed to maintain the availability of competitively priced mortgages and small business loans.They also agreed to commitments on boardroom pay. No directors would receive cash bonuses this year and in future remuneration would be more closely linked to long-term value creation and more account taken of risk.

A third concession was that the Treasury would have some say in the appointment of additional non-executive directors to the banks’ boards. However, the biggest surprise was the decision to make the capital injection mostly in the form of ordinary shares rather than preference shares.

Ordinary shares are more risky for the taxpayer and do not automatically pay a dividend. However, they count as higher-quality capital and therefore improve the strength of banks in the eyes of the market. They may also deliver bigger profits to the Government if the rescues ultimately succeed.

A second surprise was that Lloyds has reduced the price that it is paying for HBOS in its planned takeover, due to take place in three months. After weeks of insisting that the terms would not change, it said yesterday that it would reduce the offer by 27 per cent, paying 0.605 of a new Lloyds share for each HBOS share.

RBS said that it was taking £20 billion from the Government, £15 billion through the issue of ordinary shares, and £5 billion through preference shares. HBOS is taking £11.5 billion, £8.5 billion of it through ordinary shares and £3 billion through preference shares. Lloyds TSB is taking £5.5 billion, of which £4.5 billion is through ordinary shares and £1 billion via a new preference share issue.

Barclays yesterday gambled that it would be able to raise capital from its existing private shareholders, announcing plans to raise £6 billion, half in ordinary shares, half in preference shares. It has rejected the immediate offer of public money on the understanding that, if it fails to raise money elsewhere, it may have to pay tougher terms if it returns to the Treasury.

It scrapped plans to pay a final £2 billion dividend this year and also pledged to find £1.5 billion of additional savings to boost its balance sheet.

The banks are paying a blanket rate of interest to the Government of 12 per cent on the preference shares.

Sir Fred is being replaced by Stephen Hester, currently chief executive of the commercial property group British Land, but will stay on for a few weeks until Mr Hester arrives. Mr Hester, a former investment banker, cut his teeth in high-street banking when he was parachuted in as the No 2 to sort out Abbey National, which he eventually sold to the Spanish Banco Santander.

The Treasury said that the package was necessary to ensure that the banking system remained on a sure footing. “By providing banks with increased levels of capital — through the purchase of shares — and by introducing a guarantee scheme to encourage lending between banks, these actions will restore confidence in the banking system and ensure banks are more willing to lend,” it said.

You have to laugh

How markets work

“The chief of a Native American tribe was asked in the autumn if the winter was going to be cold or mild. Being a 21st-century chief he had no idea, but said that it was going to be cold and told the people in his village to collect wood.

A few days later he rang the National Weather Service.

“Yes, it is going to be cold,” they told him, so he went back to his people and told them to collect more wood.

A week later he called again.

“Is it going be a cold winter?” he asked.

“Yes, very cold.”

So he went back and told his people to collect every bit of wood they could.

Two weeks later he called again. “Yes,” he was told, “it is going to be one of the coldest winters ever.”

“How can you be so sure?” the chief asked.

The weatherman replied: “The Native Americans are collecting wood like crazy.”

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