UK Chancellor of the Exchequer Alistair Darling is considering a dramatic taxpayer-funded recapitalization of Britain's banks, the Financial Times reported on Monday on its Web site.

On Sunday, Darling said he was "looking at some pretty big steps which we would not take in ordinary times".

Although the Treasury said no decision had been taken to activate any contingency plan, it would not rule out a voluntary bank recapitalization scheme, the FT reported. "It is a pretty fast-moving situation," one official told the paper.

The scheme, which reminds of a similar operation by the Swedish government in the early 1990s, would be available to all banks.

Taxpayers might be protected through preferred shares or warrants, giving them generous dividends in future.

Bank of England Governor Mervyn King is also thought to favor a recapitalization plan to supplement the central bank's own operations to boost liquidity to the financial system.

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