Share prices fall despite news of £400bn measures

UK BANKING RESCUE:BRITISH CHANCELLOR Alistair Darling revealed the British government's £400 billion (€506 billion) package of measures designed to kick-start the British banking system yesterday, while falling shares reflected fears that leading economies, including the UK, are heading into recession.

"Extraordinary times call for bold and far-reaching solutions," declared prime minister Gordon Brown as Mr Darling unveiled his "part-nationalisation" recapitalisation blueprint and appealed to people not to judge the success of the rescue package by the instant market reaction.

Share prices initially rallied also on foot of yesterday's co-ordinated cut in interest rates - the Bank of England cut rates by half a percentage point - but fell again in another day of turmoil as the International Monetary Fund (IMF) predicted the British economy would contract by 0.1 per cent next year while growth across the developed world slows to almost zero.

Opposition parties promised bipartisan support for the British bailout in the House of Commons yesterday. However, Conservative leader David Cameron insisted "the real test" would be whether it "feeds into the real economy" with small businesses and homeowners able to get the loans they need as a result. Shadow chancellor George Osborne hammered home that message - "Let us be clear, we do this not to rescue the banks or the bankers, but the real economy" - while Mr Cameron also pressed Mr Brown for an assurance that there would be "no bonuses" this year for senior executives in participating banks.

Eight banks - Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered - are so far signed-up for the deal that will allow banks to increase their capital by at least £25 billion. With a further £25 billion in extra capital also available in return for preference shares (which Mr Darling hopes will eventually turn a profit for the taxpayer), the chancellor also confirmed an additional £100 billion in short-term loans, and up to £250 billion in loan guarantees available at commercial rates to encourage banks to resume lending to each other.

With taxpayers making such an "enormous intervention", Mr Cameron told Mr Brown it was vital to prevent "reckless behaviour" or "unjustifiable bonus payments" for bankers benefiting from it.

Mr Brown assured him there were "strings" and "conditions" attached. The Financial Services Authority would be responsible for issuing "rules on capital adequacy" which would be a further check ensuring there was reward for "hard work" and "enterprise" rather than for "excessive risk taking".

Mr Brown said the issue of "proper levels of remuneration" would be dealt with on a case-by-case basis. Mr Cameron insisted: "No one wants banks to fail. But no one wants rewards for failure."

Mr Brown and Mr Darling faced a fresh headache last night as town hall bosses called on them to guarantee huge sums of council taxpayers' money invested by local councils in stricken Icelandic-owned banks.

Having already promised to guarantee British depositors' money in Icesave, Mr Osborne had earlier pressed Mr Darling on whether he had plans to extend that protection to other British depositors in other foreign banks that might get into difficulty.