The European Commission (EC) has approved a £17bn government capital injection in Lloyds Banking Group (LBG) in return for reducing its operations.

 The bank, which 43% owned by the Government, will also now press on with a £21.5bn fundraising in fresh capital, through a rights issue, in order to fund its losses.

Neelie Kroes, EU Competition Commissioner said she thought the plan was "a great deal" for British consumers. "

This plan will address the Commission's competition concerns while ensuring the return of LBG to long-term viability.

This decision demonstrates the important role that the EU's state aid rules play in facilitating sustainable bank restructuring whilst preventing undue distortions of competition," she added.

The EU executive also approved a £2.5bn exit fee that Lloyds will pay to reverse its planned participation in a government asset guarantee program, leaving Royal Bank of Scotland as the sole participant.