In the meantime, the London Stock Exchange saw bank shares plunge amidst fears that the government might need to provide assistance for other financial institutions. HBOS dropped 42%, Royal Bank of Scotland (RBS) shares fell 39%, Barclays shed 9% and Lloyds TSB was down 13%.
Alistair Darling, the Chancellor of the Exchequer, Mervyn King, the Governor of the Bank of England, and Adair Turner, the Chairman of the Financial Services Authority (FSA) attended a meeting with the bosses of the UK’s biggest banks. As a result of the “emergency meeting” the Treasury revealed the rescue plan for UK banks on Wednesday.
The government agreed to provide £50bn for the eight largest banks in the UK. The participating banks and building societies are Abbey, Barclays, HSBC, HBOS, Lloyds TSB, RSB, Nationwide and Standard Chartered. The banks would be required to increase their capital and could borrow up to £25bn from the government at market rate. Another £25bn would be made available to banks by the government in return for preference shares. In other words, tax-payers’ money would be used to underpin the banking system, but with a prospect that the government could make a profit from the shares.
Part of the package is the measure that banks would be able to borrow up to £200bn for short-term loans from the Bank of England, which means that it is up another £100bn now. The government also agreed to guarantee loans up to £250bn at commercial rates.
As a sign of the joint international effort to tackle the crisis, the Bank of England, the Federal Reserve and the European Central Bank announced on Wednesday a co-ordinated interest rate cut of 0.5% as an effort to shore up the world economy.
Almost at the same time of the announcement of the rescue plan and the interest rate cut, authorities in the UK revealed that they expected Icesave, the British savings arm of the Icelandic Landsbanki, to file for insolvency. Savings are guaranteed up to £50,000, but it is feared that approx 15,000 British depositors will lose a substantial part of their savings.
- to relax rules – szabályozást hatályon kívül helyez
- to plunge – mélyzuhan
- Chancellor the Exchequer – pénzügyminiszter (GB)
- Governor of the Bank of England – az angol jegybank elnöke
- take a U-turn – 180 fokot fordul, visszalép, teljes fordulatot vesz
- rescue plan – mentelmi terv
- to increase capital – tőkét emeli
- preference share – elsőbbségi részvény
- short-term loan – rövidlejáratú hitel
- commercial rate – kereskedelmi árfolyam
- to shore up the economy – aládúcolja a gazdaságot
- insolvency – fizetésképtelenség
- depositor – betétes
- substantial – jelentős, nagyarányú