Shares in Royal Bank of Scotland (RBS) rose 2p to 368p, as it confirmed that it is considering a massive rights issue to inject up to £12 billion of new capital into its balance sheet.

However, rival bank shares fell on fears that they will follow RBS in raising funds to repair their balance sheets which have been decimated by the credit crunch.

The most likely to make rights issues are Barclays and HBOS which fell 3p and 1p respectively to 475¾p and 549p. Bradford & Bingley, which was forced to deny it plans a rights issue on Monday, fell 1½p to 172p, while Alliance & Leicester was 8p lower at 502p.

But it emerged today that the RBS rights issue is part of a bigger package of measures thrashed out at this week's meeting between Prime Minister Gordon Brown and the chief executives of all the major banks.

This resulted in a package of measures likely to be announced by the Bank of England next week aimed at improving liquidity for the banks.

One senior banker said: "The Treasury and Bank of England will only go so far to help liquidity. Part of the quid pro quo for that was the banks being told they had to raise new capital."

Brown made it very clear to the bankers that he expected them to come clean and get the bad news about their writedowns into the market quickly.

"RBS has suffered from a chronic case of financial indigestion following a whole string of takeovers culminating with ABN Amro," said David Buik of BGC Partners. "But it does look like shareholders are ready to back this."

RBS holds its annual meeting next Wednesday when it was due to update investors anyway. But the rights issue details could come earlier.

Analysts expect RBS to add to the £2.4 billion of writedowns it has already announced.

Many have being predicting an RBS capital raising for months after its leading role in the €71 billion (£49 billion) takeover of ABN Amro at the height of the credit crunch last year. Since the takeover bank shares around the world have more than halved in value.

RBS, which owns NatWest and Direct Line insurance, said: "RBS notes recent speculation about a possible rights issue.

"RBS confirms that its Interim Management Statement covering trading performance and capital will be made next week."

The next few days will be crucial for chief executive Sir Fred Goodwin, 49, as he not only needs to get the backing of his board for the rights issue but also put in place the underwriting in the City which will guarantee he raises all the money.

There is no question that the rights issue will not be underwritten, but RBS also hopes to be able to sell the new shares at a slight discount to its current shares price.

"At least RBS has first mover advantage," said one analyst. "There is likely to be limited demand for bank shares and those who come last in the rights issue queue may find it a lot tougher."