The proposed $700m bail out of the US Economy and Wall Street put forward by George Bush is stalling as legislators are worried about the cost and the governments level of involvement in the financial sector. However Bush remains optimistic that plans will be passed as Congress have vowed to stay in session until a deal is done.

The stalling created nervousness on this side of the pond and sent the FTSE down 109 points (2%) to 5,088. The bad news was compounded by Banks announcing that mortgage rates were on the increase again as liquidity in the market remains non-existent.

Following a meeting between Mervyn King, Governor of the Bank of England and the Chief Executives of Barclays, HBOS, HSBC, Lloyds TSB and RBS, it is understood that Mr. King is considering allowing the use of a wider range of assets to stand as collateral. Importantly this includes mortgages.

Mr. King had been reluctant to do this as he did not want to be seen to be bailing out Banks that had acted irresponsibly in the current economic climate. Whilst considering relaxing the criteria, the Bank has agreed to make an additional £5bn a week available to the Banks until the next interest rate meeting on the 9th April.

The extra funding was much needed as it was three times oversubscribed. This very fact indicates there is still significant pressure within the banking system.

The FTSE 100 closed on Friday at 5,631.7, down 60.7 points (1.1%) amid news the US’s fifth largest bank, Bear Stearns, was in trouble and had sought emergency funding from the Federal Reserve.  Unlike with the Northern Rock debacle the Americans have acted fast to try and stop a major bank collapsing. However, the funding to prop up Bear Stearns is only for an initial period of 28 days.

Not surprisingly the UK Banks bore the brunt of the losses with Royal Bank of Scotland (RBS) falling 8.5 points (2.48%) to 333.75p and Barclays (BARC.L) falling 17.75p (3.94%) to 433p. The biggest loser was HBOS (HBOS.L) , tumbling a significant 34p (6.05%) to 528p. Although this is also due to speculation of further writedowns at the Bank.

The FTSE 250 reflected the fortunes of the FTSE 100, losing 1% to 9,706.1.

HSBC has written-down £8.7bn due to the size of its exposure to US markets and the decline in the US housing markets and hence the value of its loans. The credit crunch leaves HSBC cautious in its outlook for 2008 and believes the situation could get worse before it gets better.

 Despite the level of write-downs HSBC, the UK’s largest bank saw its profits rise by 10% to £12.2bn. The fundamentals of HSBC remain strong and to send a positive message to the market it has increased dividend payments to shareholders by 11%.

The share price of Alliance & Leicester has headed north amid speculation that the mortgage lender will be the subject of a takeover. Lloyds TSB, who’s own recent results proved that playing it steady pays off, is mooted as a front runner.  Lloyds stated that it was on the lookout for buying opportunities as the recent credit crunch bites.

Lloyds TSB reported a 6% rise in profits to £3.7bn in 2007, compared with £3.6bn in 2006, despite the credit crunch. It attributed its successful performance to ‘good old fashioned banking’ an approach that smaller banks such as Northern Rock and Bradford & Bingley should have taken notice of. Lloyds share price rose 5% on the back of this news.

Lloyds is keen to reinvest some of these profits and is on the lookout for buying opportunities created by the uncertainty in the markets. The money will undoubtedly be spent wisely as Lloyds is seen as a conservative player in the banking sector. With returns like these, Lloyds has proved that this is the best approach to adopt in times of trouble.