UK Banks in government funding talks

By David Clarke and Dominic Lau

LONDON (Reuters) - The government held talks with major banks on Monday evening at which the possibility of an injection of public money was discussed, according to a source familiar with the talks.

"The big banks and the chancellor met yesterday night. Recapitalisation is one of the options being considered," the source said.

Earlier reports by the BBC and others said three top banks, Royal Bank of Scotland, Lloyds TSB and Barclays were seeking 15 billion pounds each to help them get through the financial crisis gripping global markets.

The British bank sector talks took place as Iceland's financial authorities took over the country's second largest bank.

News of the talks sent shares in the banks down sharply as investors anticipated a dilution of their holdings.

Royal Bank of Scotland (RBS) was the biggest loser, with its shares down 32 percent at 101 pence. Lloyds TSB shares fell 14 percent and Barclays fell 12 percent.

RBS CEO Fred Goodwin declined to comment on the reports. Lloyds TSB also declined to comment. A Barclays spokesman said it had "categorically not" requested any capital from the government.

The Treasury declined to comment, but said it would do whatever was necessary to maintain stability.