HBOS shares plunge 48% in 24 hours (and LIBOR doubles!)

Shares in the Halifax banking group, HBOS, plunged sharply for the second day running amid fears that it could be a major victim of the collapse of US investment bank Lehman Brothers.

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Bankers said they were refusing to let go of any dollars, preferring to hold on to them in case they were suddenly called upon to settle outstanding trading options with Lehman Brothers.

That meant that the borrowing rate, or London Interbank Overnight rate, which is set officially in London around lunchtime for the dollar, more than doubled from 3.10625% to 6.43750%. That is more than three times the official US interest rate of 2% and is the highest the interbank rate has been since April 2001.