UK to lead global efforts to restore stability

UK prime minister Gordon Brown today called on world governments to follow the UK’s example in its efforts to stem the world financial turmoil.

Writing in the Times today, Brown advised other governments to address issues of "liquidity, funding and capital” in their own banks, as the UK had with its aid package announced on Wednesday.

Under the terms of Wednesday’s aid package, the Bank of England will double the amount of loans given under the special liquidity scheme from £100 billion to £200 billion. An additional £50 billion will be given to recapitalise banks, inter-bank lending will be guaranteed on commercial terms, and the government will take stakes in banks.

Brown also called for stronger international rules for transparency and a broader international consensus for regulation. He said that a global problem needed a global solution and expressed the hope that assistance would be offered by the G7, the International Monetary Fund, and the Financial Stability Forum. The G7 finance ministers' meeting today in Washington, followed by the IMF and World Bank meetings at the weekend, should "lay down the principles and the new policies for restructuring our banking and financial system all around the globe", he said.

Brown said he hoped that the security and capital offered to banks will restore confidence and encourage banks to lend to each other again - reopening the medium-term money markets was far more important than boosting short term liquidity, he said.

However, perceived counterparty risk in the inter-bank loans market has been exceptionally high in October. The Ted spread, which tracks the disparity between three-month Libor rates and US Treasury bills, hit a record high of 4.30% at 1245 BST today.

See also: UK government unveils £50 billion bank recapitalisation plan