BANK of England governor Mervyn King was today meeting the bosses of major British banks as blue chip stocks continued their rollercoaster ride after yesterday's liquidity scare in the City.
Shares in Halifax Bank of Scotland (HBoS), which was at the centre of yesterday's false rumours, rebounded to within touching distance of last night's close after strong intervention to quash the damaging scandal that the Edinburgh-headquartered bank
was in trouble.
The rumours led City traders to "short-sell" shares in HBoS, Britain's biggest mortgage lender and one of Scotland's largest companies. The practice involves borrowing shares from other traders before selling them in the hope of buying them back at a more advantageous price.
By midday today, shares in HBoS – which at one point yesterday had shed 17 per cent of their value – had gained more than three per cent, or 17.5 pence, to sit around the 464p level, valuing HBoS at £17.34 billion.
But the wider FTSE 100 index was in negative territory after heavy overnight falls on Wall Street, with turbulence in financial markets showing no sign of abating. By midday it had recovered slightly after its initial 60-point plunge, but was still around 28 points off opening levels, with Edinburgh-based Cairn Energy one of the biggest losers – down 6.4 per cent.
At today's meeting, bank bosses were expected to tell Mr King he needs to do more to reassure creditors that the central bank will provide help, if needed.
The BoE had to make an unprecedented move yesterday to deny the rumours that HBoS had turned to it for emergency funding. The Edinburgh-based financial giant dismissed yesterday's rumours as "lies".
City regulator the Financial Services Authority (FSA) has launched an inquiry into the market abuse, accusing traders of spreading false rumours and dealing off the back of them.
Sally Dewar at the FSA, said: "We will not tolerate market participants taking advantage of the current conditions to commit abuse by spreading false rumours and dealing on the back of them."
Chancellor Alistair Darling yesterday moved to reassure the City that the UK's economic growth plans remained on track.
He also insisted the spectacular collapse of the American investment bank Bear Stearns earlier in the week had not altered his opinion that Britain would be able to ride out "shocks" caused by the ongoing credit crunch.
The full article contains 405 words and appears in Edinburgh Evening News newspaper.
