LONDON (AFP) - The British government said Saturday it will take a majority stake in Lloyds Banking Group and guarantee toxic assets, leaving only two major British banks outside the state's control. The state will increase its ownership of the group from 43 percent to 65 percent and insure 260 billion pounds (290 billion euros, 365 billion dollars) worth of its toxic assets. Under the govt's asset protection scheme terms, Lloyds has to take the first loss "hit" of up to 25b pounds on its toxic assets before the govt steps in, with the bank liable for 10pc of further losses. As a key part of the deal, Lloyds has pledged to lend a further 28b pounds over the next two years, with the majority going to companies rather than individuals. The second bail-out of the group was hammered out between the bank and the Treasury in recent days. It leaves just Barclays and HSBC as the only major British high street banks not controlled by the state, following the bail-out of Royal Bank of Scotland (RBS). The British govt has taken a series of steps to try to restore confidence in the banking sector and get credit flowing again. "The first part of the loss, up to 25b pounds on the valuation of those assets, will be met by Lloyds. It will, in addition, pay a 16 billion pound fee for participating in the scheme," Treasury minister Stephen Timms told BBC television. "The key part of what's being announced is that by ending the uncertainty on the valuation on those assets, as far as the Lloyds balance sheet is concerned, it's able to commit to additional lending: 14 billion pounds this year and an anticipated additional 14 billion pounds next year. "It's a legally binding commitment; they will discharge it. "Step by step, we are filling the gap created by the withdrawal of non-UK banks from the UK market," a lending shortage he valued at around 100 billion pounds. Timms said he did not know how much taxpayers stood to lose. Both Lloyds and the Treasury insisted that full nationalisation was not on the cards. Lloyds Banking Group was created in January when Lloyds TSB bought rival lender HBOS, which faced collapse because it was struggling to raise funds due to the credit crunch. Some 83 percent of the toxic assets going into the insurance scheme come from HBOS's books, compared with just 17 percent from Lloyds TSB's. The deal could pile pressure on Lloyds Banking Group chairman Victor Blank - who orchestrated the HBOS deal - and chief executive Eric Daniels. They were already facing questions about whether the cost of absorbing HBOS was worth it. Last month, the bank announced that HBOS made a record pre-tax loss of 10.8 billion pounds for 2008 and wrote off 9.9 billion pounds worth of bad consumer loans. Lloyds meanwhile made an 819 million pound profit, a 75 percent drop on last year. George Osborne, finance spokesman for the main opposition Conservative Party, said the LBG deal showed that previous government measures to prop up the banking system had flopped. "This massive second bail-out is proof that (Prime Minister) Gordon Brown's first bail-out failed, and the real test of it will be if credit starts flowing again in our economy," he said. "It is also clear that the takeover of HBOS, which the prime minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership." Lloyds led the risers on the FTSE 100 share index on Friday, with shares up 4.22 percent to 42 pence in anticipation of the deal. The deal means that the Treasury has a controlling interest in yet another British bank, with smaller lenders like the nationalised Northern Rock and the bailed-out Bradford and Bingley. RBS, which is 70 percent state-owned, has already signed up to a government asset protection scheme to insure assets worth 325 billion pounds. In return, it has promised to lend 25 billion pounds to British consumers and businesses this year.