RBS and HBOS shares stabilise as bail-out news sinks in

09 October 2008 / by Rachael Stiles
After suffering sharp falls in their share prices yesterday, RBS and HBOS have stabilised following the announcement of a £50billion rescue plan from the Government.

The bail-out, to which a group of major high street banks have agreed, would see some of the banks part-nationalised, at a cost of thousands of pounds for each UK taxpayer.

After falling sharply this week, shares in HBOS have risen back up by 32 per cent, while RBS, which lost almost 40 per cent of its value in one day, has seen its shares climb back up 18 per cent. Other shares are also making a recovery.

As part of the rescue plan, the Government will also provide a £200billion guarantee to encourage banks to lend to each other again, and a further £200billion of liquidity will come from the Bank of England.

While some banks have regained their footing, the stock market remained in turmoil yesterday, falling 5.2 per cent even after the Government made its plans known and the Bank of England surprised the markets by cutting interest rates by half a percentage point.

Fear in the stock market is still causing panic because of the drastic measures the Chancellor Alistair Darling is taking to try and bring stability back to the UK's financial system. The notion of the Treasury having to pump £500billion into the economy just to keep it afloat is setting alarm bells ringing in traders' ears.

The success of the Government's investment has yet to be seen, and will not be evident until credit is once again flowing through the markets, according to the shadow chancellor, George Osborne.

While there is still much doubt over whether or not the measures will be enough to restore calm in the financial markets, banks and other institutions have met news of the rescue plan with relief.

John Cridland, deputy director-general of the Confederation of British Industry, welcomed the "essential" measures announced by the Chancellor to strengthen the banking system and bring "financial stability for the country".

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