LONDON (AFP) — The government said Wednesday it would pump 50 billion pounds into the country's main banks as part of an emergency bailout package worth hundreds of billions of dollars.
The government said it would make 50 billion pounds of taxpayers' money available to buy shares in the banks, providing them with fresh capital in a bid to prevent a collapse of the banking system.
The three-part package also makes available 200 billion pounds in short-term loans and another 250 billion pounds to guarantee loans between banks.
The government hopes the measures will overcome the reluctance of banks to lend to each other, which is at the root of the current crisis.
Prime Minister Gordon Brown wrote to EU leaders to explain the proposals and suggest they match the guarantee on inter-bank loans, saying it was "an area where a concerted international approach could have a very powerful effect."
Eight banks -- HSBC, Barclays, Royal Bank of Scotland (RBS), Lloyds TSB, Standard Chartered, HBOS, Abbey and Nationwide Building Society -- are covered by the British package.
HBOS and RBS, whose shares have plunged, said they would join in certain parts of the rescue but HSBC, Standard Chartered and Abbey ruled out recourse to the public recapitalisation provisions of the scheme.
The package was hammered out in frantic overnight talks following heavy losses in the share prices of some of Britain's biggest banks.
The Bank of England announced later it was cutting its key lending rate by half a point to 4.50 percent as part of a coordinated international response to the dire global economic situation.
Neither measure prevented fresh falls on the London stock market with the FTSE 100 index of top shares down 5.18 percent at the close.
Unveiling the bank rescue package, Brown said "extraordinary times call for ... bold and far-reaching solutions."
"The global financial market has ceased to function, putting in danger the necessary flow of money to businesses and families on which all of us depend in our daily lives," he said.
Brown said the restructuring plan would provide "a fairer, more equitable and reliable financial system."
Chancellor of the Exchequer Alistair Darling said the bailout "will go a long way" to stabilising banks but indicated he was prepared to take further action, saying he still did not "rule anything out".
Darling denied he had dithered, which critics say caused bank shares to plunge in London since Monday amid uncertainty over the government's plans.
"I wanted to announce it when the time was right, when we had got everything sorted out, we had a scheme that worked and the big banks were signed up to it," he told Sky News.
The rescue plan sparked a volatile response in the markets.
Shares in HBOS surged up more than 50 percent at one point before dropping to show a gain of about 28 percent, which did not make up for its 42-percent plunge on Tuesday. RBS, which owns NatWest, was down 2.56 percent.
Analysts also gave the plan a mixed reception .
Researchers from Barclays Capital, the bank's investment banking arm, hailed it as "the first comprehensive plan put together by any major government since the beginning of the global credit turmoil.
"It will help UK policymakers get ahead of the crisis and should provide an important buffer for UK banks if the global and domestic economic environment were to deteriorate further."
Joshua Raymond of City Index said the recapitalisation move was bad news for existing shareholders "who are now effectively last in line" for any payouts.
"However, they also now have the UK government and taxpayers propping up the books, so they cannot have it both ways."
The government has already fully nationalised two British banks since the credit crunch began a year ago -- Bradford and Bingley and Northern Rock.
The government also vowed Wednesday to protect British savers threatened with losing money in two frozen Icelandic banks, announcing legal action against the Reykjavik government.
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