The British government says it will take a majority stake in Lloyds Banking Group (LBG), increasing its ownership from 43% to at least 65%.
That will leave only two major British banks outside state control - Barclays and HSBC.
The government will also guarantee Lloyds' so-called "toxic assets", worth about $US570 billion.
Lloyds got into difficulties after it took over a rival bank that was making no profit.
The treasury spokesperson for Britain's opposition Liberal Democrats, Vince Cable, says the British government must make sure Lloyds is being run for the benefit of the whole community.
He says the government needs to make sure it makes lending available to sound borrowers, particularly companies, which are not able to keep going because they cannot get working capital.