Governments across Europe began announcing bailout plans Monday after an extraordinary meeting of euro zone leaders in Paris over the weekend. Britain was the first to green-light a plan worth 37 billion pounds.
British bank and Treasury officials worked through the night on the 37-billion-pound bailout
Britain announced its plan Monday, Oct. 13, after a red-eye session between British banks and Treasury officials ended with Britain's government saying it planned to invest up to 37 billion pounds (47 billion euros, $64 billion dollars) in ailing British banks Royal Bank of Scotland (RBS), Halifax Bank of Scotland (HBOS) and Lloyds TSB.
Also on Monday, RBS announced plans to raise 20 billion pounds of new capital under a government bailout plan. As part of the plan, the bank also said its chief executive, Fred Goodwin, would step down. The move follows recent turmoil surrounding the bank which saw its share price fall to 1.71 pence.
Merger partners HBOS and Lloyds, are set to raise a combined 17 billion pounds, with HBOS taking on 11.3 billion pounds of that, including 3 billion through the sale of preference shares, to strengthen its balance sheet. HBOS Chief Executive Andy Hornby and Chairman Dennis Stevenson were likewise to step down.
The move effectively means that the government will hold a 57 percent stake in RBS and 43.5 percent in the combined HBOS/Lloyds TSB group.
Barclays said it would not draw on the government funds and would instead raise 6.5 billion pounds from shareholders. They remain eligible for government assistance, however, should that fall through.
Central banks to offer short-term loans
The move boosted the London stock market Monday morning
Meanwhile, central banks across the continent said they would provide unlimited amounts of dollar loans. The Bank of England, European Central Bank (ECB) and Swiss National Bank will make US dollar loans for periods of seven, 28 and 84 days "at fixed interest rates for full allotment," a statement by the ECB said.
The decision was part of a fresh push by central banks around the globe to boost the supply of dollars in stressed credit markets.
Those markets came to a standstill after the international financial crisis made banks wary of lending to each other because they were unsure that borrowers would be able to pay back the loans.
By providing unlimited amounts of dollars to commercial banks, referred to as counterparties, the banks aimed "to improve liquidity in short-term US dollar funding markets," the statement said.
"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction," the central banks said.
They added that they "will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets."
Last week, the ECB and the US Federal Reserve unveiled exceptional interest rate cuts, a move that the Chinese National Bank and the Bank of Japan later followed.