UK shares have fallen sharply, with the FTSE 100 index down by more than 4%, after another weekend of extraordinary events in the banking sector.
The German government announced what appeared to be a 100% guarantee for all private bank deposits, but the Treasury has yet to clarify the details.
If there is a full guarantee, then the UK may have to follow suit.
It comes as the Treasury is understood to be considering buying large stakes in Britain's banks.
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BBC business editor Robert Peston said it would be a way of injecting extra money into the banking system to get them lending to each other again, while at the same time meaning taxpayers could make a profit from the shares if the banks recovered.
'Radical action'
Treasury Secretary Yvette Cooper, speaking ahead of the first meeting of the new National Economic Council, would not confirm the details of the contingency plan.
"What we've shown is that we're prepared to take radical action where it is needed," she told BBC News, while refusing to speculate on what measure might be taken.
In morning trade, the FTSE 100 index was down 5.4%, or 266.5 points, at 4,713.8.
The banks led the fallers, with HBOS down 15.7%, Royal Bank of Scotland falling 11.5% and Lloyds TSB down 7.3%.
There is concern that if Germany has indeed guaranteed all deposits, German banks may have an advantage when trying to borrow money on wholesale markets.
The falls follow a series of events over the weekend:
- The German government was forced to salvage a 50bn euro ($69bn; Ј39bn) rescue package for Hypo Real Estate
- Denmark and Sweden both increased the amount of protection depositors in their banks receive
- Iceland decided not to offer a rescue package for its banks but said they would have to sell overseas assets
- The individual actions came after EU leaders decided at a summit on Saturday not to attempt a pan-European solution
- France's BNP Paribas said it would take a 75% stake in Fortis.
(BBC)
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