Banking shares prices fall

1:10pm Tuesday 7th October 2008

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ROYAL Bank of Scotland was the biggest victim on another day of turmoil for banks amid mounting speculation that the Government is set to spend billions on a taxpayer-funded rescue of the ailing sector.

RBS was down 40 per cent at one point - with big falls for HBOS, Barclays and Lloyds TSB - following crisis talks with Chancellor Alistair Darling last night.

But in an attempt to calm market nerves, RBS said: "Contrary to press speculation, RBS did not make a request to Government for capital."

Gordon Brown today reaffirmed his determination to take "whatever action is necessary" to maintain the stability of the financial system in the face of the latest market turmoil.

The Prime Minister updated ministers on the latest situation at this morning's meeting of the Cabinet.

Mr Brown's spokesman said: "He reiterated that the Government is ready to take whatever action is necessary to get the country through this challenging period for the global economy."

The Prime Minister's spokesman refused to be drawn on reports that the Government was considering a plan to recapitalise the banks by taking shares in them, effectively part-nationalising them.

"We are, of course, looking at every aspect, including with other countries and the financial sector itself," he said.

"It would be irresponsible for the Government to speculate on the specifics of any future responses.

"As and when the Treasury are in a position to say more they will say more, but we are not going to speculate prematurely."

Today's decline came as London's leading share index opened in positive territory after yesterday's 7.8 per cent fall wiped £93bn from the value of the country's leading shares.

Yesterday's dramatic session saw the Footsie slump 391 points, its largest one-day points fall amid evidence the global banking crisis was intensifying across Europe.

The market opened up 120 points thanks to a late rally on Wall Street and a bigger-than-expected cut in Australian interest rates which offered some respite for beleaguered investors.

The Dow Jones Industrial Average was down more than 800 points at one point last night, but recovered in the final 90 minutes of the session to finish down 370 points at 9,955.50 - still its first close below 10,000 since 2004.