UK's Brown Tells Banks to Come Clean

Banks must reveal the true scale of their bad assets to help revive frozen global credit markets, British Prime Minister Gordon Brown said on Saturday as officials met bank chiefs to thrash out a new rescue package.

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In an interview with the Financial Times, Brown said any recovery from the worst economic turmoil in 70 years will depend on banks first writing off toxic loans to try to restore confidence in the financial system.

His government is expected to announce new measures early next week to boost bank lending in an attempt to help Britain avoid a painful, deep recession.

Despite a multi-billion pound bank bailout last year and a series of record rate cuts, banks remain unwilling to increase lending as they try to boost their coffers and avoid risk.

Shares in Britain's biggest banks plummeted on Friday on fears of more writedowns and the return of short selling after a temporary ban. Barclays was the worst hit. Its shares closed down 25 percent at 98 pence, the lowest since 1993.

After the markets closed, the bank took the highly unusual step of revealing that it expected pre-tax profits for 2008 to be "well ahead" of analysts' forecasts. Barclays is not due to report its annual results until Feb. 17.

Brown is eager to get banks to increase lending to businesses and households after a series of bleak figures on trade, unemployment and the housing market.

"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," Brown told the newspaper. "We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with."

Government officials and executives from big banks were meeting over the weekend to discuss possible new measures to boost bank lending, a Treasury source said.

A spokesman for Brown declined to comment further on the banking talks, referring reporters to the Financial Times interview.

Details of the latest rescue plan are expected to be unveiled within days and could include state guarantees of mortgage-backed securities, the Treasury source added.

The taxpayer may end up underwriting 200 billion pounds ($298.3 billion) of bad banking debt, the Daily Telegraph newspaper reported on Saturday, citing unnamed sources.

In the United States, the government extended $20 billion of new aid to Bank of America , which along with Citigroup , reported huge losses on Friday.

Brown held talks on the crisis with his finance minister Alistair Darling, Bank of England Governor Mervyn King and the Financial Services Authority's chairman Adair Turner.

With an election due before May next year, Brown is under pressure to prove he is the right leader to handle the crisis.

Although his poll ratings rose in the early days of the turmoil, the former finance minister has recently lost more ground to the opposition Conservative Party.

Brown repeated his call for an international response to the crisis and said he would visit "a lot of countries in the next few weeks" for talks about the crisis.

"The greatest risk after the events of the last few months is a retreat into what I would call financial isolationism," he told the newspaper. 

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