Bank shares jump on stimulus news

UK bank shares have jumped today (June 15th) on news that the government and central financial institutions are working together to launch two new stimulus packages.

The Bank of England (BoE) has announced it has made plans aimed at increasing financial liquidity, as the UK faces a worsening economic outlook due to the ongoing eurozone debt crisis.

Governor of the BoE Sir Mervyn King announced at Mansion House yesterday that together with the government, the Threadneedle Street institution will provide billions of pounds of cheap credit to banks so they can increase business lending.

Chancellor George Osborne said the measures would "inject confidence" in the UK.

Also speaking at Mansion House, the Conservative Party politician remarked: "We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep."

Sir Mervyn explained that the first part of the two-pronged stimulus programme will be a cheap loan initiative aimed at supporting banks on the basis they increase lending.

This action plan was selected over quantitative easing, while Sir Mervyn hopes the additional credit will be in place in the coming weeks.

The second part of the proposal was originally outlined in December 2011.

The Extended Collateral Term Repo Facility looks to address the shortage in liquidity in the banking sector, with the aim of making it easier and more affordable for banks to borrow at least £5 billion per month to cover shortfalls.

Sir Mervyn's plan has come under some scrutiny from shadow cabinet member Ed Balls, who said the new scheme is an "admission that the government's existing policies have failed".

At 09:15 BST, the Royal Bank of Scotland's shares on the FTSE 100 index were up 6.1 per cent to a value of 243.6p, while Lloyds Banking Group also advanced by 4.1 per cent to shares worth 30.9p.

Also on the benchmark's leader board was Barclays, with shares in the bank climbing 3.7 per cent to 199.9p.