Round One of banking crisis: Darling's bailout plan

The UK and US bailout plans – followed by those throughout the world – should only be considered as round one of the fight against the crisis.

Business and the investment community have been quick to welcome the deal to stabilise banks – now in place in the UK and Europe as well as the US – but no-one is ready to say the end of the crisis is in sight.

Richard Lambert, director-general of the CBI, said: "This is an historic day for British capitalism that will result in a fundamental change in the structure of the banking system."

Meanwhile, David Kern, economic adviser to the British Chambers of Commerce, warned investors not to be lulled into a false sense of security.

"The positive initial market reaction should not lull anyone into a sense of complacency. There could well be renewed speculative attacks, and the government may be caught by surprise. It must be ready to rebuff any new irrational market reactions."

John Greenwood, Invesco chief economist, explained the global banking crisis was still not out of the woods, and further share price fall could still come and along with more losses for banks.

"I expect the asset bubble - house prices, commercial property prices, commodities, equities etc - to unwind further from here, giving rise to further losses for banks.

"The basic problem is that asset prices were pushed up too far by excess credit creation, and out of line with the ability of borrowers to service the debt on a sustainable basis," he said.

"Asset values and debt levels have to be re-aligned with income levels."

He added: "Losses from private equity, losses from carry-trade unwinds by hedge funds, by mortgage borrowers in Hungary, corporate borrowers in Turkey etc, are still to hit bank balance sheets, as well as the 'normal' losses from a recession, that have not yet begun to hit bank balance sheets.

"This will be a more serious recession than normal, therefore we should expect larger losses than normal."

Mr Greenwood added: "All this means that the Paulson Plan and Darling Plan can only be regarded as Round 1 in what will likely be a multi-round effort to turn around the developed economies."

He went on to predict further interest rate cuts with the cost of borrowing falling to very low levels in 2009.