LONDON/KUALA LUMPUR - Governments across the world moved
on Monday to shore up confidence in the global banking system with
a slew of bank bailouts worth hundreds of billions of dollars.
Stocks markets reacted positively, with European shares
opening up more than 4.5 percent following solid gains in Asia,
Britain said it would spend up to 37 billion pounds ($63.95
billion) buying into top UK banks. The move will likely see the
UK government becoming the biggest shareholder in Royal Bank of
Scotland and lender HBOS.
The French government will also create a 40 billion euro
($54.89 billion) fund to take stakes in banks, Dow Jones
newswires said on Monday, citing a source.
France's finance ministry had no comment on the report but
said a news conference was planned later in the day.
Germany and Italy were expected to make similar moves. The
German bank rescue plan alone could be worth up to 400 billion
euros, according to media reports, and is being fast-tracked
through the parliament in Berlin.
Euro zone leaders held an emergency meeting on Sunday and
hurried out plans to help banks through the worst financial
crisis since the 1930s.
French President Nicolas Sarkozy said people could expect a
flurry of coordinated announcements of financial details from
national capitals across Europe, notably Paris, Berlin and Rome
on Monday afternoon.
In tandem on Monday, European central banks said they would
lend out as much U.S. dollar liquidity as commercial banks need
for in a further joint bid to tame money market tensions.
In a joint announcement with the U.S. Federal Reserve, the
European Central Bank, the Bank of England and the Swiss
National Bank said they would meet all bids from commercial
banks at a fixed interest rate.
Australia and New Zealand earlier also guaranteed all bank
deposits and Indonesia upped its guarantee to 2 billion rupiah
($203,000) while India pledged more liquidity to help financial
The moves followed a weekend of crisis talks in the United
States and Europe in which governments pledged to support the
financial system, which has moved to the brink of collapse as it
suffers from both steep losses in the credit market and a lack
of trust in lending that has frozen the flow of capital.
The crisis has swept across financial markets, sending many
stock markets into free fall. MSCI's main world stocks index,
for example, has lost a quarter of its value since the beginning
Investors appeared to be comforted by the government
The pan-European FTSEurofirst was up 4.6 percent and Asian
shares outside of Japan, whoch was closed for a holiday, gained
"We are arguably now near the end point in terms of the
extremely violent sell off in equities and widening in spreads,
said Sean Maloney, a bond strategist at Nomura.
But he added: "The recovery process is likely to be very
long winded and will likely take about as long as the crisis has
taken thus far."
What world leaders have been trying to avoid is a repeat of
the situation where the likes of Lehman Brothers were allowed to
The head of the IMF said the worst of the financial crisis
was possibly over, and the Fund would draw lessons from the
crisis to make proposals to reform the international financial
IMF Managing Director Dominique Strauss-Kahn said individual
states should intervene when necessary according to their own
specific needs, but it was important that any intervention
should be "massive".
Underlining this, three major British banks could take 37
billion pounds in government money to boost their capital, the
UK Treasury said.
Royal Bank of Scotland said in a statement it will boost its
capital by 20 billion pounds, including the UK government taking
5 billion pounds in preference shares and 15 billion pounds
underwritten by the government. HBOS and Lloyds TSB will also
participate in the government scheme "upon successful merger",
the Treasury said in a statement.
Barclays said in a separate statement it would boost its
capital by more than 6.5 billion pounds but expected to do so
without government help.
"It's necessary because we are going through quite
extraordinary circumstances the world over and I'm determined to
do everything we can to stabilise our banking system and make it
stronger," British finance minister Alistair Darling said.