FINANCIAL LEADERS meet in Washington today amid fresh doubts on the ability of the world's seven richest nations to develop a unified international response to the worldwide banking crisis.
Global stocks fell yesterday, despite a co-ordinated effort to stem the worsening credit crisis with a series of emergency interest rate cuts around the world.
Finance ministers and central bank governors from the G7 group of leading industrial nations meet in the US capital for the annual meetings of the International Monetary Fund and the World Bank, as it emerged that US government is planning to buy stakes in banks to stop the crisis tipping the US economy into a deep recession.
The French government has said it will not follow Britain's bank rescue plan to provide medium-term guarantees to encourage banks to start lending to one another again, raising concerns on whether the leading economic powers can present a common front to tackle the crisis.
Rallies in European and US stocks proved to be short-lived, with a downturn on Wall Street quickly followed in Europe as bank and financial shares were sold off.
Irish shares out-performed European stocks early yesterday, closing 0.5 per cent lower.
The four Irish banks endured a mixed day on the markets, as the main mortgage lenders confirmed that they will pass on the full 0.5 percentage point interest rate cut announced by the European Central Bank on Wednesday.
Irish Life Permanent rose 10.8 per cent as Permanent TSB, the country's largest mortgage lender, said it would pass on the interest rate cut to customers.
Anglo Irish Bank rose 4.9 per cent, while AIB climbed almost 8 per cent. Bank of Ireland fell 7.8 per cent.
Mortgage borrowers with Bank of Ireland, Ulster Bank, First Active, National Irish Bank, EBS and Irish Nationwide building societies and IIB Bank will also receive the full interest rate cut, following on from AIB and Halifax-Bank of Scotland (Ireland), the first lenders to pass on the reduction to customers on Wednesday.
The three-month cost of borrowing in euros among banks - which sets mortgage costs for banks across Europe - held at a record high yesterday, despite the ECB interest rate cut, leading to concerns the co-ordinated rate reductions had failed to revive lending between banks.
The extension of the Government's bank guarantee scheme to foreign-owned banks with significant high street retail operations in the State will add about 10 per cent, or almost €45 billion, to the €440 billion in bank liabilities already covered by the scheme.
Minister for Finance Brian Lenihan extended the guarantee to include Ulster Bank and its sister bank, First Active; Halifax-Bank of Scotland (Ireland); Belgian-owned IIB Bank and Irish savings bank Postbank, a joint venture between An Post and Belgian-Dutch bank Fortis.
The extension of the guarantee raises the total liabilities covered under the scheme to €485 billion.
The European Commission said the scheme may remove competition concerns with EU regulators. Limiting it to Irish-owned banks had raised fears the guarantee discriminated against foreign-owned banks operating in Ireland.
The State-guaranteed liabilities at the foreign-owned banks will not include inter-company debt between the Irish subsidiaries and their parent banks based overseas.