Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc rose after the U.K. central bank said it would provide billions of pounds of cheap emergency aid to shore up British lenders as Europe’s debt crisis worsens.
RBS surged 7.9 percent to 247.6 pence in London trading, the most in almost five months, while Lloyds climbed 5.2 percent. The companies are Britain’s two-biggest taxpayer-assisted lenders. Barclays Plc and HSBC Holdings Plc also gained, while the pan-European, 43-member Bloomberg Europe Banks and Financial Services Index rose 2.1 percent.
Bank of England Governor Mervyn King unveiled a “funding for lending” program that will allow institutions to swap assets with the central bank in return for money to be loaned to companies and households. The U.K. Treasury said a 5 percent increase in lending would inject about 80 billion pounds ($124 billion) into the economy.
“The real and present danger was that Greece leaves the euro and the banks collapse due to a lack of liquidity,” said Cormac Leech, a London-based analyst at Liberum Capital Ltd. “The BOE has now guaranteed that the banks will stay solvent if there is panic and a significant proportion of the U.K. population takes their money out.”
The central bank will also activate an unused facility to put at least 5 billion pounds a month into the financial system in an effort to bring down borrowing costs driven higher by the turmoil in the euro region.
‘Devil in Detail’
King’s measures highlight central banks’ concern over the dangers posed by the euro-area debt crisis after Spain became the fourth member of the region to seek a bailout last week. Reuters reported that central banks are prepared to coordinate actions if needed to boost liquidity in financial markets, citing officials linked to the Group of 20 nations.
“The devil will be in the detail, so we await to see exactly how this scheme will result in banks changing their view of credit risk and more small firms’ applications being accepted,” John Walker, national chairman of the Federation of Small Business, said in an e-mailed statement today. “There must be a clear reporting process to provide tangible evidence the money is being passed on to small firms and not just shoring up the banks.”