In need

Paris, Oct. 12 (Reuters): European leaders raced against the clock on Sunday to craft a rescue strategy for banks hit by the worst financial crisis since the 1930s, focusing on pledges to recapitalise banks or buy debt they issue.

According to a draft statement circulated at their summit in Paris, the leaders from the euro currency area were working on a 14-point plan of which two key ingredients were the commitments to provide capital and insure or directly buy into debt issues.

“Governments remain committed to avoid any failure of a systematically relevant institutions, through appropriate means including recapitalisation,” said the draft statement.

The pledge to help or directly subscribe to debt-raising by banks for periods of up to five years would last to end-2009 and was meant to complement efforts by the European Central Bank to unfreeze inter-bank lending markets, which have frozen up.

Norway’s government and central bank introduced new measures on Sunday to boost banks' liquidity and their ability to fund themselves, including plans for up to 350 billion crowns ($57.41 billion) in new government bonds.

UK move

Major British banks are likely to announce their plans to recapitalise early on Monday, a person familiar with the matter said, a move which could see the government take multi-billion pound stakes in several lenders.

Banks were in crisis talks with the government and regulators on Sunday to determine how much capital each needs from the £50 billion ($86 billion) offered by Britain last week.

An announcement is expected before the market opens on Monday but details are still being fine-tuned, said the source, who declined to be identified.

The Sunday Times said the Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays could ask for a combined £35-billion lifeline.

RBS may need at least £10 billion, HBOS over £5 billion and Lloyds and Barclays more than £3 billion, according to industry sources.

That could result in the government becoming the biggest shareholder — and even a majority investor — in RBS and HBOS.

It could take seats on the boards of banks, a government source said on Saturday.

Lloyds, RBS, HBOS and Barclays declined to comment.

British finance minister Alistair Darling, attending a G7 finance ministers’ meeting in Washington, said the government was to give more details early this week about its already announced £400-billion banking rescue plan.