Warning for banks

The US treasury secretary has warned some banks will still fail despite the $700bn (£406bn) rescue package to shore up the financial system.

Henry Paulson called for the plan’s swift implementation, but said the financial crisis would not end soon.

Seven central banks on Wednesday cut interest rates in an effort to steady the faltering global economy.

There was also a co-ordinated trimming of interest rates by seven central banks including the Federal Reserve.

The IMF’s chief economist, Oliveri Blanchard, said the orchestrated rate-cuts could not solve the world’s financial crisis on their own but “were clearly a step in the right direction”.

But he warned “there will be tough economic times ahead”.

Chief international economist at Capital Economics, Julian Jessop, said the rate cut would provide a “temporary boost to confidence”, but warned there was still a lot more work to do.

“The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become,” said Mr Jessop.

On Wednesday, the UK government unveiled a package of measures aimed at rescuing the banking system which could add up to £400bn.

Italy also unveiled details of a banking rescue plan that could involve the government taking stakes in failing banks.

The US Federal Reserve, meanwhile, agreed to provide insurance giant American International Group with a $37.8bn loan on top of the $85bn loan given to the troubled firm last month.