Page last updated at 05:54 GMT, Thursday, 9 October 2008 06:54 UK

US warns of further bank failures

Henry Paulson on the strain facing the financial markets

The US treasury secretary has warned some banks will still fail despite the $700bn (406bn) rescue package to shore up the financial system.

Henry Paulson called for the plan's swift implementation, but said the financial crisis would not end soon.

Seven central banks on Wednesday cut interest rates in an effort to steady the faltering global economy.

The co-ordinated effort was carried out by banks including the US Federal Reserve and the European Central Bank.

More work to do

The IMF's chief economist, Oliveri Blanchard, said the orchestrated rate-cuts could not solve the world's financial crisis on their own but "were clearly a step in the right direction".

The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become
Julian Jessop
Capital Economics

But he warned "there will be tough economic times ahead".

Chief international economist at Capital Economics, Julian Jessop, said the rate cut would provide a "temporary boost to confidence", but warned there was still a lot more work to do.

"The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become," said Mr Jessop.

On Wednesday, the UK government unveiled a package of measures aimed at rescuing the banking system which could add up to 400bn.

Italy also unveiled details of a banking rescue plan that could involve the government taking stakes in failing banks.

The US Federal Reserve, meanwhile, agreed to provide insurance giant American International Group with a $37.8bn loan on top of the $85bn loan given to the troubled firm last month.

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