European Banks to Get Billions from Governments

British Govt. Bailing Out Banks

The British government said Monday it would provide up to 37 billion pounds in government money to boost the balance sheets of three of Britain's largest banks.

» LAUNCH VIDEO PLAYER

LONDON, Oct. 13 -- European governments put hundreds of billions of dollars into their banking systems Monday and the U.S. Federal Reserve announced it would back up their effort by making U.S. currency available in unlimited amounts, as efforts continued to strengthen the foundations of the world financial system.

After a weekend of coordinated action among world financial officials, U.S., European and Asian stock markets rose sharply as details of bank rescue plans were unveiled in Europe, and the Fed said it would support the European effort with a steady flow of dollars to support short-term loans of from one to six weeks.

On Wall Street, the Dow Jones industrial average jumped more than 400 points in the first minutes of trading.

The London stock exchange rose more than 5 percent in early morning trading, and French and German stock markets each soared nearly 7 percent. The Japanese stock market was closed today, but other Asian indexes had gains of anywhere from 3 percent to more than 10 percent in Hong Kong.

In London on Monday morning, the British government said it would partially take over several major banks, providing $34 billion to the Royal Bank of Scotland and another $29 billion to Lloyds TSB and HBOS, two banks that are in the process of merging. The move would give the British government about a 60 percent stake in RBS and a 40 percent stake in the bank created by the Lloyds-HBOS merger.

Separately, the cabinet in Germany okayed a plan to guarantee about $500 billion in bank loans and provide about $136 billion in goverment capital to Germany banks. In Paris, French President Nicolas Sarkozy said the French government will make about $54 billion availble to bolster bank capital and offer guarantees to about $436 billion in bank loans.

Details of other government actions are expected later Monday. The moves followed a deal reached Sunday in Paris by European governments who agreed to provide capital for banks and take other steps to restart credit markets so that financial firms will begin lending again to businesses, consumers and one another. Credit markets in recent months have virtually stopped functioning, depriving the world economy of a major source of operating cash.

To undergird the European effort, the U.S. Federal Reserve announced that it would provide dollars "in quantities sufficient to meet demand" for the Bank of England, the European Central Bank and the Swiss National Bank. Currency "swap lines" among the central banks have been expanded in recent weeks to ensure an adequate supply of dollars in Europe but were still subject to limits.

But with key central banks there hoping to boost interbank and other lending, the Fed suspended those limits for at least six months.

"Reciprocal currency arrangements . . . will be increased to accommodate whatever quantity of U.S. dollar funding is demanded," the Fed said. The money is put in circulation through short-term loans. The European banks said future dollar loans would be made at a fixed interest rate, rather than auctioned.

The British bank rescue plan announced Monday was the first step in implementing a broad strategy set out last week by Prime Minister Gordon Brown that would provide at least 400 billion pounds, or nearly $690 billion at current exchange rates, in capital and loan guarantees to jump-start bank lending that had all but stopped.

Brown, in an early morning news conference just before financial markets opened in London, said the "unprecedented but essential" measures would ensure that Britain would be the "rock of stability" in the financial crisis sweeping the globe.