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By Lee Wild

Date: Monday 06 Oct 2008

LONDON (ShareCast) - As the financial system appeared to crumble chancellor Alistair Darling once again claimed the government will “do whatever is necessary to maintain stability”, but stopped short of announcing fresh measures to tackle the credit crunch.

"It's essential that we take action to both support the banking system as a whole - as well as being ready to intervene in particular cases when it's necessary to do so," he told MPs in the Commons this afternoon.

He also called on his European colleagues to work more closely together to solve the crisis.

It was hoped that Britain’s finance minister would calm the nation as European governments moved unilaterally to shore up their own banking systems.

London’s index of top 100 shares plunged almost 8% Monday to its lowest since October 2004, while Wall Street dived below 10,000.

Darling had promised that the government was "looking at some pretty big steps which we would not take in ordinary times”.

He meets with other EU member states in Luxembourg tomorrow before catching up with G7 finance ministers in Washington at the end of the week.

Gordon Brown’s National Economic Council met today for the first time since MPs returned to Westminster following the summer recess. It is thought they discussed the part nationalisation of UK banks.

A recapitalisation plan, said to be backed by Tory leader David Cameron and Bank of England governor Mervyn King, would see UK taxpayers take a stake in British banks in an effort to get them lending to each other again.

Darling had also pledged not to leave ordinary savers unprotected as the credit crunch continues to claim fresh victims.

Liberal Democrat Shadow Chancellor, Vince Cable, urged the government to find “a comprehensive approach to these difficulties”.

They must “put the rulebook to one side and adopt radical measures including a big cut in interest rates,” he said.

The Bank of England’s Monetary Policy Committee meets this week to decide interest rate policy. Many are calling for a half point cut from their current 5%, but they worry that an obsession with inflation may prevent such a bold move.

“If the Bank does cut, we see little point of reducing by anything less than 0.5%,” said Killik Capital analyst Jonathan Jackson.

Cable thinks the government should intervene if necessary and take a shareholding in banks that would give the taxpayer a return from any commitment of public funds.

Meanwhile, the Treasury is still awaiting confirmation from German chancellor Angela Merkel about just how her government plans to protect savings held in German banks.

Finance minister Peer Steinbrueck said that German account holders do not need to worry about losing a "single euro" in the current crisis, as the government, together with a number of banks and insurers, agreed a last-minute rescue of Hypo Real Estate, one of Germany’s largest lenders.

Merkel also moved to assure depositors at a press conference on Sunday, saying “We want to tell people that their savings are safe.”

Talk is that the Germans will not pass new legislation to protect savers.

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