Dexia bailed out as contagion continues

30 September 2008

Franco-Belgian bank Dexia has been supplied with a $9.2 billion infusion of public money.

The bailout, from the governments of France and Belgium, follows fears that investor panic over the stability of Europe's banks is spreading.

Icelandic, German, Benelux and British financial firms have all been either partially or entirely nationalised over the past week, due to declining market confidence.

Congress' rejection of the US government's rescue plan for the nation's financial sector has stoked this sentiment - and has also led to a further drying-up of inter-bank lending.

The Dow Jones index also fell 777 points yesterday - an all-time one-day record.

Commenting on the situation to Bloomberg, Natixis analyst Christophe Ricetti said: "Things have accelerated brutally."

"The inter-bank market has collapsed," Hans Redeker, currency chief at BNP Paribas, told the Daily Telegraph.

"We're now seeing a domino effect as the credit multiplier goes into reverse and forces banks to cut back lending to clients."

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