Britain launches £500 billion financial bailout

The British government has launched a £500 billion ($A1.2 trillion) rescue package to stabilise its biggest banks, savaged by an investor rout caused by the global credit crunch.

Finance Minister -Alistair Darling rushed out measures before the opening of the stock market on Wednesday to help boost lending and restore confidence, after frantic overnight talks that followed dramatic falls in the share prices of some of the UK's most prestigious financial institutions.

Under the deal, which will cost taxpayers in the UK about £2,000 each, and is designed to give the banking system enough funds to maintain lending in the medium term, the government will offer banks short-term liquidity and make new capital available to banks.

The package includes £200 billion provided by the Bank of England in liquidity, an outlay of £50 billion in preference shares for banks and other eligible institutions, and £250 billion to guarantee new bank debt.

“This is beginning a process of un-bunging a big problem where banks won't lend to each other for long periods,” Mr. Darling said.

Eight banks and building societies will take part in the scheme, including Barclays, HBOS, HSBC, Lloyds, TSB, Abbey, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.

British Prime Minister Gordon Brown said the global financial market had ceased to function after bad debts stemming from a collapse in the US housing market poisoned the system.

“There is a failure of responsibility by many in the banking system,” Mr. Brown told a news conference. “It has become a problem in the whole banking system; we have got to deal with it.”

“We have led the world today with a proposal to restructure our banking system.”

“We are taking the steps that I believe that other countries will take in the future.” Reuters.