Page last updated at 11:12 GMT, Thursday, 9 October 2008 12:12 UK

Darling in US for finance meeting

Alistair Darling
The finance ministers will have much to talk about

Alistair Darling is flying to the US to meet with fellow finance ministers to discuss ways in which countries can continue to tackle the banking crisis.

The Chancellor is due to attend a meeting of the G7 group of leading nations on Friday, and an International Monetary Fund gathering on Saturday.

It comes after six of the main central banks cut interest rates by half a percentage point on Wednesday.

The UK government also pledged a further 400bn for British banks.

Extra funds

Under the UK government's 400bn move, banks will have to increase their capital by at least 25bn and can borrow from the government to do so.


The markets are still getting to grips with the detail

Keith Bowman, Hargreaves Lansdown Stockbrokers

An additional 25bn in extra capital will be available in exchange for the government receiving preference shares.

A further 100bn will be available in short-term loans from the Bank of England, on top of an existing loan facility worth 100bn.

And up to 250bn in loan guarantees will be available at commercial rates to encourage banks to lend to each other.

To participate in the scheme banks will have to sign up to a Financial Services Authority agreement on executive pay and dividends.

'Worries'

Despite the government's announcement of an extra 400bn for the banking sector, and the co-ordinated interest rate cuts by the six central banks, analysts have warned that the economic turmoil could be far from over.

"The markets are still getting to grips with the detail," said Keith Bowman, equity analyst Hargreaves Lansdown Stockbrokers.

Nic Clarke, banking analyst at Charles Stanley Stockbrokers, said the problem was that there were "two big pictures at work here".

"Worries about capital, which these plans will help, and worries about the global economy going into a deep recession, which these plans cannot solve," he said.

The cut in UK interest rates to 4.5% from 5% prompted six mortgage lenders to immediately reduce their rates.

Halifax, Woolwich, Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, First Direct which is part of HSBC, Royal Bank of Scotland and NatWest all announced they were going to cut their standard variable rate by half a percentage point.

The last time the Bank of England cut rates in a special meeting was on 18 September 2001 - when rates were cut from 5% to 4.75%.


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