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Government to unveil bank rescue Government to unveil bank rescue
(about 1 hour later)
The UK government is poised to announce details of a comprehensive rescue package for the banking system, the BBC's business editor has learned.The UK government is poised to announce details of a comprehensive rescue package for the banking system, the BBC's business editor has learned.
It will include a proposal to inject capital into banks and to provide a standby facility to ensure UK banks have enough cash.It will include a proposal to inject capital into banks and to provide a standby facility to ensure UK banks have enough cash.
This is the government's attempt to stabilise the country's banking system. Up to £50bn of taxpayers' money will be used to stabilise the banking system.
The news comes after a day of steep falls in UK banking stocks and a high-level Downing Street meeting.The news comes after a day of steep falls in UK banking stocks and a high-level Downing Street meeting.
Chancellor Alistair Darling said he would make a statement before financial markets open on Wednesday morning and address the House of Commons later in the day. Chancellor Alistair Darling said he would make a statement before financial markets opened on Wednesday morning and address the House of Commons later in the day.
It matters to all of us that the ambitious plan works - not least because the reluctance of our banks to lend to companies and households is sending the economy into recession. Robert Peston, BBC business editor Read Robert's blog
Prime Minister Gordon Brown earlier held talks with Bank of England Governor Mervyn King. Mr Darling and the chairman of the Financial Services Authority, Lord Turner, also took part in the discussions.Prime Minister Gordon Brown earlier held talks with Bank of England Governor Mervyn King. Mr Darling and the chairman of the Financial Services Authority, Lord Turner, also took part in the discussions.
The announcement comes amid a series of dramatic developments in the world financial system:
  • US President George W Bush called for co-ordinated action by leading industrialised countries to tackle the credit crunch Bush urges joint response
  • UK bank shares took a big pounding. HBOS dropped 42%, Royal Bank of Scotland (RBS) fell 39%, Barclays shed 9% and Lloyds TSB was down 13%
  • The Icelandic government took control of the country's second biggest bank, Landsbanki, which owns UK internet bank IcesaveIceland takes over Landsbanki
  • European Union finance ministers agreed to increase the guarantee for customers' bank savings accounts to at least 50,000 eurosEU moves to reassure bank savers
  • The British Chamber of Commerce said that the UK was already in recession UK economy 'already in recession'
  • The International Monetary Fund warned the economic downturn in many countries was likely to worsen as the financial crisis continuedIMF warns of 'severe downturn'
'Big moment''Big moment'
The BBC's business editor Robert Peston said the Treasury has been working on the plan for weeks. The BBC's business editor Robert Peston said the Treasury had been working on the plan for weeks.
"In a UK context, this is a very big moment," he said."In a UK context, this is a very big moment," he said.
It will involve investing taxpayers' money in banks, which should make them stronger and more confident to lend, he said.It will involve investing taxpayers' money in banks, which should make them stronger and more confident to lend, he said.
To address the collapse of confidence in money markets, the standby facility should ensure big banks have enough cash to fund day-to-day operations.To address the collapse of confidence in money markets, the standby facility should ensure big banks have enough cash to fund day-to-day operations.
"We need a full and comprehensive plan. We don't need any more step-by-step measures," said Peter Hahn, a banking expert at the Cass Business School."We need a full and comprehensive plan. We don't need any more step-by-step measures," said Peter Hahn, a banking expert at the Cass Business School.
"Markets should react positively but we need to know what the details are.""Markets should react positively but we need to know what the details are."
Shares hitShares hit
Banking shares dropped after the bosses of biggest UK banks met Chancellor Alistair Darling on Monday evening - raising fears that the sector needs government intervention. Banking shares dropped after the bosses of the biggest UK banks met at the Treasury on Monday evening - raising fears that the sector needs government intervention.
HBOS dropped 42%, Royal Bank of Scotland (RBS) fell 39%, Barclays shed 9% and Lloyds TSB was down 13%.
Monday's meeting was attended by Mr Darling, Mr King and Lord Turner, as well as representatives of RBS, Barclays and Lloyds TSB.Monday's meeting was attended by Mr Darling, Mr King and Lord Turner, as well as representatives of RBS, Barclays and Lloyds TSB.
Meanwhile, customers of the Icesave internet bank have been warned they will probably have to claim compensation for money held in their savings accounts.Meanwhile, customers of the Icesave internet bank have been warned they will probably have to claim compensation for money held in their savings accounts.
UK authorities are preparing for the bank's parent in Iceland, Landsbanki, to be declared insolvent and the bank is not allowing savers to withdraw their cash.UK authorities are preparing for the bank's parent in Iceland, Landsbanki, to be declared insolvent and the bank is not allowing savers to withdraw their cash.
Icesave has 350,000 savers in the UK and Netherlands, with about £4.5bn of deposits.Icesave has 350,000 savers in the UK and Netherlands, with about £4.5bn of deposits.