The U.K. government took control of Lloyds Banking Group over the weekend. This may come as a relief to Lloyds. INN previously reported that shares of Lloyds Banking Group fell 11.5% on February 27, according to At that time, the bank and British government had not yet agreed on a deal for legal assurance, which some think may have caused the fall.

Shares of Lloyds Banking Group have since recovered to trade 4.1%, or 1.7 pence (3 cents), higher at 43.7 pence (60 cents), after the U.K. government announced it would take a larger, controlling stake in the firm.

The bank will be owned up to 77% by the government, and is covered under the Asset Protection Scheme, which grants protection, provided by the government, against certain credit losses on particular assets in exchange for a fee. The protection will cover a range of assets, including mortgages, unsecured personal loans, corporate and commercial loans and treasury assets.

Treasury Minister Stephen Timms released a statement, saying “Lloyds announced on Saturday their intention to place £260 billion of assets in the scheme, on which they have already taken impairments of some £10 billion—and through the first loss mechanism they will retain a further exposure of £25 billion. Any losses beyond this will be borne 90% by the Treasury, and 10% by Lloyds.

As part of this deal, Lloyds has agreed to increase its lending by an additional £14 billion over the next 12 months, and made a similar commitment for 2010. Lloyds also agreed that no discretionary bonuses will be paid in 2009 except to junior staff earning an average of 20,000 pounds ($27,600), and that there will be no annual free-share award at all, according to Timms.

Lloyds will be required to present a detailed implementation plan to the government, and to report monthly on compliance with the lending agreements.

“It is essential to restore confidence in the banks, allow them to clean up and rebuild, and get lending going again,” Timms says. “The economic recovery and thousands of jobs depend on it. The government is clear that British banks are best owned and managed commercially, and not by the Government. The future of the U.K. as a financial center, and the future of our economy and thousands of jobs, depends on being able to run banks commercially.

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