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Banks slump fuels market crisis fears

By Jonathan McCambridge

Traders who had been braced for more financial turbulence after the market meltdown that wiped billions off share values were today hit by further uncertainty over funding for the banking sector.

Shares in Royal Bank of Scotland slumped 40% at one point amid reports boss Sir Fred Goodwin and his rival bosses at Barclays and Lloyds TSB met with Chancellor Alistair Darling to discuss a possible capital injection for the sector.

The FTSE 100 Index slid 1%, wiping out a shortlived rally that came after yesterday’s 7.8% fall.

RBS, which fell 20% yesterday, was the worst casualty with Lloyds TSB down 16%, and Barclays down nearly 10%.

RBS declined to comment on its share price movement today or the reports of a plea for a Government capital boost but it confirmed that Sir Fred was part of the team of banking bosses involved in last night’s meeting with the Chancellor.

It was reported RBS, Barclays, and Lloyds TSB needed around £15bn of extra capital each. Barclays denied it had requested a government cash injection.

A spokeswoman for Lloyds TSB refused to comment on whether any discussions were taking place with the Government.

Gordon Brown reaffirmed his determination to “take whatever action is necessary” to maintain the stability of the financial system.

The Prime Minister updated ministers on the latest situation at this morning’s meeting of the Cabinet.

Mr Brown’s spokesman said: “He reiterated that the Government is ready to take whatever action is necessary to get the country through this challenging period for the global economy.”

Russia today pledged a four billion euro (£3.11bn) loan to bolster Iceland's foreign exchange reserves.

Iceland's government is trying to wrest control of an increasingly dire economic situation and restore some confidence in the country's hard-hit banking sector.

The move comes a day after trading in shares of major banks was suspended. The Icelandic krona fell a quarter against the euro.

The central banks says the maturity of the loan from Russia is three to four years. The bank says discussions about the loan had begun some months ago.

In a day of drama on the markets the Footsie slumped 7.8% yesterday — its largest one-day percentage decline since the aftermath of Black Monday in October 1987.

This reduced the value of British blue chip companies by £93bn.

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