Government considers bank options

By Kate Kelland and Myles Neligan

LONDON (Reuters) - The government promised on Monday to protect ordinary savers in the face of global financial turmoil, but shares in the country's banks fell sharply on fears the government would seek partial ownership in return for support.

Germany pledged on Sunday to guarantee private deposit accounts, following earlier moves by Ireland and Greece, and other European governments followed suit.

The government said it was prepared to take "big steps" to restore confidence and get the financial system working properly again, but Chancellor Alistair Darling did not detail any specific measures.

"It's essential that we take action to both support the banking system as a whole, as well as being ready to intervene in particular cases when it's necessary to do so," he said in a speech to parliament.

Pressed repeatedly by politicians on what options the government was considering, Darling would say only: "I'm determined that when we take action we will take it quickly, we will take it decisively, and it works."

Investors are worried measures being considered by Britain could include injecting capital into UK banks in return for equity stakes, which would weaken existing holdings.

"The obvious implication in the UK of a bank recapitalisation programme is that existing shareholders would be severely diluted," said Panmure Gordon analyst Sandy Chen.

Shares in all the UK's big banks dropped heavily on Monday. At 4:30 p.m., Royal Bank of Scotland was the biggest loser among FTSE 100 banks, down 22.2 percent. HBOS fell 18.4 percent, and Barclays was off 14.4 percent.