The taxpayer's potential exposure to ailing banks has been cut by more than £300 billion as a result of today's shake-up, Chancellor Alistair Darling has said.

This is accounted for by the £260 billion in toxic loans - mostly from HBOS - which Lloyds is no longer putting into the taxpayer-backed Asset Protection Scheme (APS).

Meanwhile, Royal Bank of Scotland has also cut the risky assets it is placing into the APS by £42 billion from the original £325 billion announced in February.

The Chancellor had pencilled in a maximum £50 billion in losses - around 3.5% of the UK's entire annual economic output - on banking sector interventions in April's Budget.

But the Treasury expects to revise these figures downwards shortly in the Pre-Budget Report "subject to wider factors" - although its purchase of shares will add £13 billion to its cash needs this year.

The taxpayer is also nursing paper losses of £4.2 billion on its current £14.5 billion spent on shares in Lloyds, as well as £5.5 billion on the £20 billion pumped into RBS last year.

Now the Government will give an extra £25.5 billion in capital into RBS - although the taxpayer is also on the hook for an extra £8 billion if the bank needs it.

But the APS is now a much cheaper scheme for the bank - in effect "catastrophe insurance" in the words of the bank's directors - with RBS paying £700 million a year until 2011 instead of a £6.5 billion upfront fee.

The bank will also be allowed to claim tax loss and allowances in contrast to the original terms, although it must pay an exit fee of £2.5 billion when it leaves the APS, less fees paid up until that point.

Meanwhile, the taxpayer is investing another £5.7 billion in Lloyds to buy up its allotment of shares under the group's £13.5 billion rights issue, although it will receive a £2.5 billion fee from the bank quitting the APS.

This net £3.2 billion outlay takes the public funds in Lloyds - which stood at around £14.5 billion before today - to almost £18 billion.

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