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Markets Rebound On Bank Proposals

RENEE MONTAGNE, host:

The London Stock Exchange has been digesting yesterday's news that the government of Prime Minister Gordon Brown will inject some $65 billion into three of the country's main banks. It turns out, it's going down well. Stocks are up sharply today in London and elsewhere in Europe as other EU countries follow suit. Now President Bush has announced that the U.S. government will purchase shares in ailing American banks, following Britain's lead. NPR's Rob Gifford has more from London.

ROB GIFFORD: It was Winston Churchill who joked that you can always rely on the Americans to do the right thing once they've exhausted all the other options. Gordon Brown might have had Churchill in mind yesterday as he took the leadership role in dealing with the financial crisis and congratulated the presidents of France, the European Commission, and the European Central Bank for following his lead.

Prime Minister GORDON BROWN (Great Britain): I warmly welcome the fact that under the strong leadership of presidents Sarkozy, Barroso, and Trichet, the Euro area countries have now agreed to take action on liquidity, capital, and funding guarantees together. And it's important that America and Europe work together. So in advance of any international meetings, I spoke to President Bush last night after returning from Paris, and we agreed the common ground for action in our two continents.

GIFFORD: Officials in Washington have suggested that, unlike the British banks, U.S. banks receiving government capital in return for an equity stake would not be required to eliminate dividends, though Treasury Secretary Henry Paulson in his statement this morning said there would be some restrictions on executive compensation. Here in Britain, one of the main conditions for providing the lifeline cash injection yesterday was that senior executives, the so-called fat cats, would step down. The most visible of those leaders was the chief executive of the Royal Bank of Scotland, Sir Fred Goodwin, who managed to not exactly apologize yesterday for his role in the current banking crisis.

Sir FRED GOODWIN (Chief Executive, Royal Bank of Scotland): This wouldn't have been the moment or the circumstance I'd have chosen, but I actually do understand why this is happening, and I think this is the right thing for me to do. It's the right thing for the group. But I do feel sad.

GIFFORD: Even with the changes, however, there are concerns, not least about the possible creation of a two-tier banking system in Britain. Several of the healthier banks here declined the offer of recapitalization from the government, and some analysts say those banks, with no government conditions imposed on them, could have an advantage. Ralph Silva is a banking analyst at the TowerGroup in London.

Mr. RALPH SILVA (Banking Analyst, TowerGroup): There is one significant difference between the U.S. plan and what we've incorporated here. And that is the U.S. - the nine U.S. banks are not being given an option. They must all take on the burden of this type of thing. And that brings up an interesting question. We have no historical precedents for this, but we actually have banks that are essentially state-owned - well, are at least state-managed - and then we have banks that are commercially managed, both operating within the same environment. And that's an interesting prospect.

GIFFORD: Gordon Brown, much to the annoyance of the opposition parties, enjoyed one more Churchillian moment yesterday. After announcing the drastic measures, he stepped back and looked at the bigger picture, saying that world leaders must now show the same courage and foresight in reforming the international financial system, just as Roosevelt and Churchill did at the end of World War II. Rob Gifford, NPR News, London. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Rob Gifford
Rob Gifford is the NPR foreign correspondent based in Shanghai.