U.K. to Provide GBP 25B to 'Eligible Institutions (Update)

The U.K. government is to make GBP 25B available to "eligible institutions". In a statement today, Chancellor Darling announced that the government provides Tier 1 capital through preference shares or PIBS to "eligible institutions". These intuitions compromise Abbey, Barclays, HBOS, HSBC, LLoyds TSB, Nationwide and RBS. These institutions have committed to increase their Tier 1 capital by GBP 25B and the government says it stands ready to provide GBP 25B of further support. Details of the amount issued to each institution will be provided later on. Meanwhile, funds of at least GBP 200B will be available to banks through the BoE's Special Liquidity Scheme. U.K.'s Chancellor Darling does not rule out further action in support of British banks and says the government will do whatever it takes to help stabilize the situation. He also stressed that taxpayer interests are being protected in the recently announced bank rescue deal. The plan sees the government making GBP 25B available to "eligible institutions", which is less than the previously rumored figure of GBP 35-50B. Meanwhile, the pound-dollar (GBPUSD) firmed up following the U.K. bank funding announcement.

U.K. government will provide tier 1 capital through preference shares. Funds of at least GBP 200B will be available to banks through the BoE's Special Liquidity Scheme and GBP 25B is available to eligible institutions. Cable rallied from 1.7440 to hit 1.7608 highs and EUR-GBP fell from 0.7788 to record 0.7719 session lows. The news has inspired optimism that the run on U.K. banks will now abate following these government measures. The market will focus on how bank stocks react to the news and whether it fuels the confidence that is required to get banks lending again. Meanwhile, pressure grows for the BoE to also deliver an aggressive rate cut at tomorrow's MPC decision, with the U.K. recession expected to deepen in the wake of the current financial crisis.