The UK's top share index chalked up its biggest ever one-day points fall as Chancellor Alistair Darling attempted to reassure financial markets.
Mr Darling said the government would do whatever necessary to ensure the stability of the financial system but offered few specific measures.
The FTSE 100, which was launched in 1984, fell 391.1 points, or 7.85%, to close at 4,589.2.
This means that £93.4bn has been wiped off the value of the index's shares.
In terms of points, Monday's fall was bigger than the slides seen in the wake of the September 11 attacks on the US and the 1987 stock market crash.
'Support'
Mr Darling told MPs that the government would act to support the banking system as a whole as well as supporting individual banks
The chancellor said that European countries needed to work together to respond to the global financial crisis.
But despite pledges being given by some European Union countries, Mr Darling stopped short of guaranteeing all bank savings and called on EU members to co-ordinate action.
"When member states take unilateral action, it does have a knock-on effect," he said.
He also said that the Bank of England would inject a further £40bn into the financial system to help ease the credit crunch.
Stocks slide
Stock markets around the world also fell sharply during trading on Monday.
"There can be no sustained recovery until the markets are in the clutches of utter despair"In New York, the Dow fell 369.88 points, or 3.58%, to end at 9,955.50 - falling below the 10,000 point barrier for the first time since 2004.
The falls follow a series of events including:
Emergency meeting
Mr Darling told the Commons that an emergency meeting would be held in Luxembourg on Tuesday, where he hoped that all EU member states would agree to act together to avoid confusion.
The chancellor said that 98% of UK bank accounts will be covered by deposit protection once the increase in the amount of bank deposits guaranteed by the government takes effect on Tuesday.
The threshold has increased from £35,000 to £50,000 and Mr Darling said that the Financial Services Authority was looking at whether to increase this further.
Co-operation
The Shadow Chancellor George Osborne reaffirmed the Conservative Party's commitment to work with the Government to help ease the crisis.
"If the banking system fails it's not just the banks that go bust: businesses fail, families can't get mortgages, people lose their jobs, not just in the banks but across the wider economy," Mr Osborne said.
Vince Cable, Liberal Democrat Treasury spokesman, asked the Chancellor to consider overriding the Bank of England's right to change interest rates.
He said the central bank's mandate must include responsibility for averting a meltdown in the financial and economic system.
"Of course the issue is about the availability of credit, but it's also about official interest rates and the implications for mortgage borrowers and small businesses," he said.
The Bank of England meets this week to decide on interest rate policy.
Many economists expect a cut from the current rate of 5%.
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