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Lloyds Bank situation prompts fall in UK banking sector

As expected, the announcement that the government is set to increase its stake to around 70% in Lloyds Bank has caused serious issues in the banking sector. The whole sector has been in freefall for some days now as rumours of problems with Lloyds Bank's toxic asset insurance deal began to surface. While those issues now appear to have been rectified this has come at a significant price for Lloyds Bank, which was one of the more conservatively run UK banking operations.

As we suggested in a post yesterday, if Lloyds Bank can suffer to the extent we are seeing today we could easily see other bank shares such as Barclays and HSBC come in for more significant selling pressure. While the UK government has today repeated the fact that the UK banking sector will not be nationalised as a whole there are many people who believe the government may have no option in due course. Funding is still low, write-offs are increasing at a frightening rate and the money markets are still not liquid.

All in all the hundreds of billions of pounds which the UK government has poured into the sector so far has had little impact and in many ways the situation is now worse than it was before. It is becoming plainly obvious that the UK government will require countries such as America and China to instigate their own stimulus programs in unison with the UK to stand any chance of pulling out of this worsening downward spiral.

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