Wednesday, 8 October 2008

Britain unveils 50 bn pound bank rescue package

Britain unveiled a multibillion pound rescue package for British banks on Wednesday that included plans to inject up to 50 billion pounds of
government money into the country's biggest operators.

Finance Minister Alistair Darling said in a statement the plan would:

• offer banks short-term liquidity;
• make new capital available to banks;
• give the banking system enough funds to maintain lending in the medium-term.

The decision follows days of crippling pressure on high street banks, some of which have lost nearly half their value on the stock market amid investor fears they could collapse if they are not handed a massive liquidity lifeline.

Darling and Prime Minister Gordon Brown will hold a press conference later on Wednesday in which Brown is expected to say bold and far-reaching action is needed to tackle the global financial crisis.

Darling and Brown met the heads of the Bank of England and Financial Services Authority (FSA) on Tuesday for what the government said were talks on stabilising the banking system.

"We have been working closely with the governor of the Bank of England, the FSA and the financial institutions to put the banks on a longer-term sound footing," Darling said in a televised statement following that meeting.

As well as the statement in the morning, Darling said he would later address parliament on the plan.

Governments around the globe, from Iceland to South Korea, are fighting to unfreeze lending and borrowing brought to a halt by fears of hidden losses in financial institutions.

Pressure mounted on the British government to take swift action after shares in its major banks plunged on Monday and Tuesday. That followed reports that one of the options being considered by Britain was a massive injection of capital into the banks, which could dilute current investors' holdings.

HBOS shares lost more than 40 per cent on Tuesday and Royal Bank of Scotland dropped 39 per cent.

It was unclear whether Britain's rescue plan, which follows the U.S. decision to provide more than $700 billion in a bailout of banks and financial institutions, would be enough to restore market confidence following days of near panic.

"Barring the announcement of a particularly radical and fast-acting package, the market is unlikely to find much short-term stimulus from any unilateral plan," said Martin Slaney, head of derivatives at GFT Global Markets, in a research note.

Source: EconomicTimes

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