UK announces bank bailout plan
Posted
Updated
Mr Darling said he would later address parliament on the plan. (Reuters: Toby Melville)
The British Government has unveiled a 50 billion pound ($127.5 billion) bailout of the country's main banks as part of a multi-billion pound package to shore up the financial system.
London's FTSE 100 index of top shares plunged more than 7 per cent in early trading after the bailout announcement.
Finance Minister Alistair Darling said under the plan, Britain would inject new capital into the banks in the form of preference shares or similar instruments, and make available at least 200 billion pounds of liquidity in a bid to free up lending in the banking system.
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.
Mr Darling and Prime Minister Gordon Brown will hold a press conference later tonight, and Mr Brown is expected to say bold and far-reaching action is needed to tackle the global financial crisis.
Mr Darling and Mr Brown met the heads of the Bank of England and Financial Services Authority (FSA) 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," Mr Darling said in a televised statement following that meeting.
As well as the statement in the morning, Mr 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 US decision to provide more than $US700 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," head of derivatives at GFT Global Markets, Martin Slaney, said.
- AFP/Reuters
