Government to part nationalise banking system
Tuesday, 07 Oct 2008 22:29
Downing Street emergency conference
The government is to announce a plan to inject £50 billion into individual banks, effectively part-nationalising the UK banking system.
The chancellor Alistair Darling has said he will make a statement before the stock market opens on Wednesday morning before addressing the House of Commons later in the day.
Details of the plan to rescue the UK banking system are sparse but it is believed the government will commit to putting as much cash as necessary into the black hole created by banks' unwillingness to lend money to each other.
And in an effort to restore confidence in the banking system the government will also inject £50 billion into the individual banks.
The prime minister, chancellor and the governor of the Bank of England, along with Lord Turner, head of the Financial Services Authority (FSA) met this afternoon to discuss the government's options following what was a second day of panic particularly on banking stocks.
Banking chiefs also attended the meeting via a conference call.
Another turbulent day on the financial markets saw 39 pet cent wiped off the value of Royal Bank of Scotland, nine per cent off the value of Barclays Bank and 13 per cent wiped off the value of Lloyds TSB - which itself only stepped in to save HBOS a fortnight ago. HBOS suffered a further 40 per cent drop in its share price despite its proposed merger with Lloyds.
The Icelandic government also took control of the country's second largest bank Landsbanki, which operates the internet bank Icesave, leaving British savers who had put their money into the bank out of pocket.
Meanwhile the FTSE 100 made little ground on the record crash experienced yesterday.
Around Europe, Spain increased its saver protection and Germany's Angela Merkel, who criticised the Irish unilateral savings guarantee, has herself pledged no German saver would lose out if a bank went bust at the weekend.
As well as saver protection levels and potential recapitalisation plans banks, the Bank of England's interest rate decision, due on Thursday, is also likely to be on the agenda.
While, Mr King guardedly protects the Bank's independence on
interest rates, he is already under pressure to make an interest rate cut amid the current upheaval.
There are also calls for a half point cut to come, as a quarter point reduction would seem to be ineffective.
However, the Bank's monetary policy committee (MPC) remains dedicated to focusing on the inflation target of two per cent. They are also unlikely to issue a major cut lest they scare the markets.