Shares in HBOS fell by 41 per cent yesterday and currently stand at around 178p, down from 299p last week. Shareholders are panicking in a bid to shift the dwindling stock and HBOS and the Financial Services Authority (FSA) have been forced to issue confidence statements.

The FSA said: “We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way.”

However, it seems that the statements could not bring the lender back from the damage done by credit rating agency Standard and Poor’s, which brought the bank’s ability to cope into question, and has done nothing to boost consumer confidence.

Since then HBOS has reportedly been urgently seeking potential supporters should it buckle under the strain of a falling stock market. According to reports, only 60 per cent of its funding comes from depositors, meaning the bank is heavily reliant on the money markets which could soon spell disaster.

Rivals HSBC and Lloyds TSB have been named as potential takeover bids should HBOS need it. A merger with either of the two would create a dominating banking giant in the UK.

The impact of the collapse of Lehman Brothers and AIG in the US is immeasurable in the UK as experts believe savings, pensions and mortgage will all take a blow. The inter bank lending rate (LIBOR) has soared from 5.5 per cent 6.8 per cent as banks focus on their own liquidity in attempts to remain strong and avoid doing an HBOS.

HBOS last had a scare in March when its share price fell dangerously low and the FSA was forced to issue an emergency statement. However, that time was a result of foul play, whereas today it seems HBOS really is struggling to stay afloat.

Two in five UK households bank with HBOS, but savers are being advised to hold tight rather than panic withdraw as the Government’s safety net guarantees the first £35,000 in a savings account.

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