LONDON – The U.K. government today pledged up to 50 billion pounds ($87 billion) in government investment to help shore up ailing banks, and said it would make available additional funds for emergency lending, to help unfreeze the credit markets.

“The global market has ceased to function,” Prime Minister Gordon Brown told a news conference today at Downing St., where he was joined by Alistair Darling, the U.K. chancellor of the exchequer. “The banking system must be sounder, and that is why we are putting the capital in.”

Unlike the U.S. bailout approved last week (READ MORE), however, the British plan will not involve buying up bad debt. Instead, in what analysts were describing as a partial nationalization, its Treasury will offer to buy up preferred shares in Citizens Financial Group parent Royal Scotland Group Plc, the nation’s third-largest bank by market value, and at least seven other banks.

Half the money pledged for share purchases – 25 billion pounds – will be made available immediately, while the other half may be released if needed, Brown’s government said. In exchange, banks accepting investment under the bailout plan will face limits on dividend payouts and executive pay, plus requirements they make loans to homeowners and small businesses.

In addition, U.K. officials said the Bank of England will make available at least 200 billion pounds of loan guarantees, to help banks refinance debt.

The plan has “three strands,” Darling, the chancellor of the exchequer, told Parliament in a statement today: “First, to provide sufficient liquidity now; second, to make available new capital to U.K. banks and building societies to strengthen their resources and restructure their finances, while maintaining their support for the real economy; and third, to ensure that the banking system has the funds necessary to maintain lending in the medium term.”

But it does not specify how much each financial institution might get, according to Bloomberg News. “These measures are better than blanket guarantees, which don’t change the behavior of banks,” Peter Hahn, a fellow at the Cass Business School in London and former managing director of Citigroup Inc., told Bloomberg News. “The taxpayer has direct exposure and direct control on the banks, which is a good thing.”

The new initiative – unveiled on the same day as the Bank of England joined the U.S. Federal Reserve and other central banks around the world in announcing cuts in key interest rates (READ MORE) – follows government takeovers this year of U.K. banks Northern Rock Plc, Bradford & Bingley Plc and most recently, Edinburgh-based mortgage giant HBOS Plc. Over the past week alone, market losses cut the share value of U.K. banks by more than half, and RBS saw its credit-rating cut by Standard & Poor’s for the first time in nearly a decade. (READ MORE)

RBS shares have lost about half their value since June, when an RBS stock offering raised 12.3 billion pounds. The Edinburgh-based bank – capital-hungry since its purchase last year of ABN Amro Holding NV’s investment banking unit – posted 5.9 billion pounds in writedowns and a net loss of 761 million pounds for the first half of this year, and is expected to post another 1.1 billion pounds in writedowns by year’s end.

RBS shares rose on the news. At 9:50 a.m., the stock was up 33 cents, or 22.1 percent, at $1.82 on the New York Stock Exchange, where it closed yesterday down 49 percent at $1.49 per share. And in a statement this morning, RBS CEO Fred Goodwin praised the government plan as strengthening his bank’s position and addressing “unprecedented conditions in the financial system.”

Additional information about the British bank bailout announced today is available from the U.K. Treasury at www.hm-treasury.gov.uk.

Citizens Financial Group Inc., a commercial bank holding company with about 25,000 employees at 1,600 branches in 13 states and non-branch offices in about 40 states, is owned by the Edinburgh-based Royal Bank of Scotland Group plc. Additional information is available at CitizensBank.com or www.rbs.com.