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Among the risers were Royal Bank of Scotland (RBS) and Lloyds which saw their share prices increased by 30 per cent and 27 per cent respectively.
Meanwhile, HSBC added 36.75p to its share price, while Barclays gained 8.5p.
The rally by the banking sector led to the FTSE 100 Index surging by 92 points in the first hour of trading.
Under the government scheme, more than £500 billion of toxic assets will be insured.
In a statement, the Treasury commented: "Both the 'first loss' amount and the residual exposure provide an appropriate incentive for participating institutions to endeavour to keep losses to a minimum on those assets included in the scheme."
In related new, RBS announced a pre-tax loss of £40 billion for 2008.
