Take the banks from the greedy fat cats

He argued that those major British banks which cannot raise private capital should be taken into public ownership to create a new banking sector that is able to kick-start lending again.

Mr Livingstone said that banks likely to be affected by the plan might include Royal Bank of Scotland (RBS), HBOS and possibly Lloyds TSB, as reports emerged that the government is preparing to take a majority stake in RBS as part of a £35 billion lifeline being thrown to the sector.

RBS will ask the government to underwrite a £15 billion cash call, while mortgage lender HBOS is demanding up to £10 billion. Lloyds TSB is begging for £7 billion and Barclays £3 billion.

Bank of England governor Mervyn King has reportedly urged the banks to ask for more than they need so that their capital position is strengthened sufficiently to absorb shocks and a long recession.

But the former mayor said that, under his proposal, individual depositors and public services would be better protected and the government would not risk losing billions of pounds of public money, possibly resulting in spending cuts or higher taxes, trying to prop up bank shares in a plunging share market.

"Given the choice, no taxpayer would willingly invest their money in the shares of banks which are unable to raise private capital and are therefore heading for collapse," Mr Livingstone argued.

"Instead, to recreate stability in the banking sector and restart lending by banks, the government should nationalise those banks which are incapable of raising private capital."

Labour MP John McDonnell, who chairs the Left Economics Advisory Panel (LEAP), said: "Brown and Darling may not like to admit it yet, but full nationalisation of Britain's financial institutions is beginning to come onto the agenda as the only option left.

"Whatever is happening in the stratosphere of high economics, it is the real economy of jobs, homes, fuel and food bills and public services that we urgently need to turn to," he insisted.

"What action are we going to take through our political parties and groups, through our unions and organisations and within our communities when the recession begins to hit hard and when people start losing their jobs, are repossessed, their services cut and they are unable to pay their fuel and food bills?"

LEAP will hold an emergency rally in committee room 10 of the House of Commons at 7:30pm tonight to discuss "Who pays for the credit crunch." Speakers will include Labour MP Kelvin Hopkins, Prison Officers Association leader Brian Caton and Essex University professor Prem Sikka.

Earlier today, trade unionists will demonstrate outside the Bank of England against the "fat cats who threaten our jobs and living standards" at a rally organised by the London Shop Stewards Network.

Protesters will meet at the Threadneedle Street entrance of Bank Tube station at noon.