Britain’s largest banks were preparing on Wednesday to boost their capital reserves after the government launched a dramatic £400bn rescue plan to restore confidence among financial institutions and avert a severe economic slowdown.

The three-pronged plan, rushed out on Wednesday morning after officials worked through the night to finalise it, could see the government investing as much as £50bn in the banking industry while offering guarantees over as much of £250bn of new bank debt and adding £100bn to the existing Bank of England short-term loan scheme.