Brown calls for world to follow UK's lead

Prime Minister Gordon Brown is calling for Governments around the world to take action to support their ailing banking sectors as they teeter on the brink of collapse.

As panic-stricken investors deserted the markets, Brown urged others to follow the UK's lead in injecting billions of pounds into their banks to stem the chaos. He also called for cross-border rules on transparency and higher standards to curtail irresponsible risk-taking.

He said: "Because this is a global problem, it requires a global solution. Indeed this now moves to a global stage with a range of international meetings starting this week with the G7 and the International Monetary Fund and, we propose, culminating in a leaders meeting in which we must lay down the principles and the new policies for restructuring our banking and financial system all around the globe."

Chancellor Alistair Darling is currently meeting other finance ministers from the G7 group of industrialised nations in Washington to discuss ways to control the turmoil. 

But some European countries are reported to be reluctant to adopt similar plans to the UK's £500 billion rescue package and prefer to act on a case-by-case basis. On Thursday, French, Belgian and Luxembourg Governments agreed to underwrite a guarantee on all borrowings of Dexia bank. However, French finance minister Christine Lagarde said such plans would not be needed for all the country's banks.
   
Italy has opted for a part-nationalisation approach on a case-by-case basis although no figures on funding have been released.

Russia, however, has adopted a blanket approach in its efforts to get its beleaguered banking sector back on track. Its lower house of Parliament has agreed an $86 billion lifeboat for the country's banks with up to $50 billion available to banks to refinance foreign debt and the rest in loans. 
 
The country's stock exchanges have been suspended since Wednesday when its Micex index plunged 10% in the first hour of trading.

Paul Niven of F&C says co-ordinated effort is essential. He says: "History suggests that banking crises only end with significant Government intervention, in the form of nationalisations, blanket guarantees, and FX devaluations.

"This time is different, however, as we are not dealing with a single country or region's banking system; we are dealing with the very fabric of the global financial system. In that sense, the action which we have seen to date, such as the UK recapitalisation plan and Irish bank guarantees is helpful but international coordination is required to address what is a global problem.

"Policymakers should be acutely aware of the 'beggar thy neighbour' policies and protectionist actions which were evident before and during the Great Depression. We hope that such mistakes will not be made again."

Meanwhile in the US, the International Monetary Fund has activated its emergency loan program to lend hundreds of billions of dollars to emerging markets as they crumble under the weight of the credit crisis.

The scheme was used in 1997 during the Asian financial crisis and will assist in the speeding up of loan approvals. IMF head Dominique Strauss-Kahn says it will allow the IMF to react quickly to support those countries in need.

Have your say

Nervous investors tried to make light of the developments on the Interactive Investor discussion boards.

Rodent dingbat says: "Bank collapses, massive de-leveraging, no lending, shrinking money supply, reducing spending, falling prices. Look at any post-bubble scenario eg Great Depression, Japan post-bubble.

"We have been in the world's biggest asset price bubble (property, credit) and it is deflating. How low it can go is anyone's guess, but my view is only when property gets to below its long-term trend can we get any meaningful recovery. The excesses have to be removed from the system. History tells us that the Government can't stop it. Happy times."

Followthebulls was slightly more optimistic. He says: "IMF will give the market a bounce and buyers will jump into banking stocks the investor leaders always make money so am buying big this afternoon once US market drop has been factored, remember Barclays will still be on the high street in ten years. This week' drop will be reversed next week."