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US warns more banks will fail PDF Print E-mail
Friday, 10 October 2008

The Guardian Online

The US treasury secretary, Henry Paulson, has signalled that the government could invest in banks as it tries to contain the deepening global crisis, as Asian central banks joined in the unprecedented coordinated global rate cut.

Following the concerted interest rate cuts announced yesterday by several central banks, it appears that the US treasury is now considering taking stakes in many US banks.

The news comes after Britain announced a £500bn bank rescue package, including £50bn to buy stakes in its major banks.
At a news conference in Washington, Paulson said that the federal government would use "all resources at its disposal to make our financial system stronger".
"We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalisation of financial institutions of every size."
Striking a cautious tone that sent shares sliding on Wall Street, Paulson cautioned the US rescue plan will not save all firms. "One thing we must recognize - even with the new treasury authorities, some financial institutions will fail," he said, adding that regulators will take measures to limit the systemic risk from any single bank failure.
A degree of calm returned to the world's stockmarkets today. In London the FTSE 100 rose 93 points in early trading to 4459 points, a gain of 2.1%. Markets in Germany and France were also up, after Wall Street closed down 2% yesterday in another jittery session.
UK banking shares led the risers in London, with HBOS up 27%, Royal Bank of Scotland gaining 20% and Lloyds TSB 10% higher.
South Korea, Hong Kong and Taiwan all cut their domestic interest rates by a quarter point overnight. This followed yesterday's half-point cuts by the Bank of England, the US Federal Reserve and the European Central Bank, with the UK base rate being lowered to 4.5% from 5% at midday yesterday.
The financial crisis continued to ripple across Europe this morning. Iceland, which has been hit hard by the financial crisis, this morning took control of the country's biggest bank Kaupthing. Iceland has now brought most of its banking sector under state control. Kaupthing's board resigned.
The Italian prime minister, Silvio Berlusconi, said his government was prepared to buy stakes in failing banks while waiving voting rights. Italy has been largely shielded from the global financial turmoil because its banking sector is mostly retail, relying on savers' deposits rather than money markets.
Germany may have to consider nationalising its banks if the crisis continues to worsen, finance minister Peer Steinbrueck told a newspaper.
And in Asia, stockmarkets were mixed after quarter-point rate cuts in Seoul, Hong Kong and Taipei. Hong Kong's Hang Seng was up 2.1% at 15762 and shares in Seoul edged up 0.6%, while Taiwan's index dropped 1.45% to 5130.
"Just lowering interest rates would be far from sufficient in the current situation," said Amar Gill at CLSA in Singapore. "The main problem now is that banks are not lending to weaker banks, and the overall banking system is not lending to corporates."
The Bank of Japan did not take part in the coordinated rate move, as its interest rates are already near zero, but the country's finance minister, Shoichi Nakagawa, welcomed the move. The Nikkei index closed down 0.5% at 9157.

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