Why has the UK government decided to inject nearly $90 billion of taxpayers' money into banks and lend them a further $350 billion?
In short, they had little choice. The level of panic in the markets Tuesday, which saw banking shares decimated, meant British Prime Minister Gordon Brown and Chancellor Alistair Darling had to take urgent action to lift confidence in the banking sector. They hope the funding injection in return for shares will reassure the markets that giant banks like the Royal Bank of Scotland (RBS) and HBOS can survive the credit crunch. The $350 billion worth of loans is needed because the banks are reluctant to loan to each other -- an essential part of their daily business -- and to get cash flowing through the system again.
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