U.K. will partially nationalize banks under $88B plan

LONDON -- The British government on Wednesday made up to $87.5 billion in taxpayers' money available to eight major banks to keep them solvent and to encourage lending.

The move, announced by Chancellor Alistair Darling before markets opened here, came a day after about $30 billion in value was wiped off bank shares on the London exchange.

Prime Minister Gordon Brown said the "bold" step to partially nationalize Britain's banking system was needed to put the system on a "stronger footing" in the midst of a global financial crisis that threatens to drive much of the world into recession.

"Extraordinary times call for bold and far-reaching solutions," Brown said.

Investors on London's Stock Exchange weren't immediately impressed that the effort would avert deeper economic woes. Although some bank stocks rose on the news, the FTSE 100 index of the country's biggest companies was down about 4% late in the morning.

The market drop is similar to how investors around the world, including those on Wall Street, have reacted so far to government efforts to stabilize banking systems — including the $700-billion U.S. bank rescue plan signed last week by President Bush.

Asian markets were down again earlier Wednesday on fears that banks' failures to lend is driving other business and industrial activity to a halt. Shares in Tokyo fell more than 9%, the biggest drop since the 1987 stock market crash.

Britain's rescue effort allows the country's eight biggest banks to tap taxpayers to increase their capital up to $44 billion. It makes an additional $44 billion available to the banks in return for taxpayers' shares in the banks.

In conjunction, the central Bank of England will make $350 billion available in short-term loans and another $438 billion available in loan guarantees.

The goal, Darling told the BBC, is to get banks lending to each other and to the rest of the economy, which they haven't been doing.

Brown said the British plan was a "far more comprehensive package" than the U.S. rescue. The U.S. plan lets banks unload so-called "toxic" or bad assets from their books and onto taxpayers.