European governments moved on Monday to shore up tottering banks with multi-billion dollar bailouts and Britain called for a new Bretton Woods agreement to reshape the world financial system. The slew of bank bailouts were designed to stave off the world?s worst financial crisis in nearly 80 years, accompanied by declining global economic growth and the threat of widespread recession.
?Only by global action can we fully restore the confidence that is needed and build the international financial order,? said British Prime Minister Gordon Brown. He called on world leaders to create a new ?financial architecture? to reflect the global reach of economics and banking, in much the same way that the current international economic system was set up at a conference in Bretton Woods, New Hampshire, in 1944.
Britain said it would spend up to ?37 billion ($63.95 billion) buying into top UK banks. The move will likely see the UK government becoming the biggest shareholder in Royal Bank of Scotland and lender HBOS. RBS will boost its capital by ?20 billion, issuing ?15 billion worth of shares underwritten by the state, and ?5 billion in preference shares directly taken by the government. HBOS and Lloyds TSB will also participate in the scheme upon merger.
However, Barclays Plc said it would raise over ?6.5 billion from investors to shore up its capital base and not call upon the government for emergency funding. The bank?s board decided to raise in excess of ?6.5 billion of Tier-I capital after taking into account the new higher capital targets set by regulator Financial Services Authority for all UK banks, Barclays Plc said in a filing to the London Stock Exchange.
Across the English Channel, the French government said it will use two entities to help banks overcome the financial crisis with one offering 300 billion euros in guarantees on interbank lending and the other a 40 billion euro fund to take stakes in companies, media reports said.
Eurozone leaders held an emergency meeting on Sunday and French President Nicolas Sarkozy said people could expect a flurry of coordinated announcements from national capitals across Europe on Monday.
On cue, the German government announced it would provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster the banking system, the finance ministry said. ?Extraordinary measures are necessary under such extraordinary market conditions,? the ministry said in a statement. ?The central task is to restore faith between market participants.?
Chancellor Angela Merkel’s government pledged 400 billion euros in loan guarantees, provided as much as 80 billion euros to recapitalise banks in distress and set aside another 20 billion euros in its budget to cover potential losses from loans. The bank guarantees will run until December 31, 2009.
In tandem on Monday, European central banks said they would lend out as much US dollar liquidity as commercial banks need in a further joint bid to tame money market tensions. In a joint announcement with the US Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would meet all bids from commercial banks at a fixed interest rate.
The moves followed a weekend of crisis talks in the US and Europe in which governments pledged to support the financial system, which has moved to the brink of collapse as it suffers from both steep losses in the credit market and a lack of trust in lending that has frozen the flow of capital. The need for bailouts has become particularly trenchant against a background of a global economic slowdown, with many countries facing recession.
