Britain will hold more talks with banks this week over a possible multi-billion pound injection of public funds, industry sources said as the credit crisis tightened its grip on Europe’s main financial centre. News that banks and Chancellor Alistair Darling held talks on Monday evening sent shares in Royal Bank of Scotland (RBS.L: Quote, Profile, Research), Lloyds TSB (LLOY.L: Quote, Profile, Research) and Barclays (BARC.L: Quote, Profile, Research) sharply lower on Tuesday as investors feared their holdings might be diluted by a big government stake. But the cost of insuring their debt fell on hopes the new capital would take the pressure off existing debt. The next round of talks will focus on what form of equity the government would get for any injection of taxpayer’s money. “That’s what they will be working on over the next couple of days,” the industry source said. A second industry source said bank chief executives planned to take part in a conference call later on Tuesday. According to a BBC report said RBS, Lloyds and Barclays estimate they may need 15 billion pounds each to help them get through the crisis, which began in the United States last year when mortgages holders defaulted on payments. JP Morgan analysts calculated last week that major British banks had a total capital shortfall of 46 billion pounds using the Basel II capital adequacy standard. “I think what this signals to me is that this isn’t a situation where banks can muddle through,” said Simon Pryke, head of global research at Newton Asset Management. “They’re going to have to be recapitalised and they’re going to be heavily dependent on government and the authorities for sources of funding.” Bank officials were keen to dismiss suggestions they had asked for money. “Contrary to press rumours, Barclays has not requested capital from the government and has no reason to do so,” Barclays Chief Executive John Varley said. RBS released a statement saying much the same. Britain’s action comes as governments around the globe fight to restore confidence in banking and unfreeze lending and borrowing brought to a halt by fears of hidden losses. In the latest of a series of emergency actions, Iceland’s authorities took over the country’s second largest bank and Russia announced an aid package for its financial sector. In an indication of the urgency of the UK situation, the Financial Services Authority’s director of banking, Thomas Huertas, cancelled a speaking appointment on Tuesday morning. “There’s a lot going on and you would expect us to be speaking to people,” said an FSA spokesman asked whether this meant he was involved in talks. One opposition politician sensed that the government felt rushed by events. “It probably will have to come forward with proposal earlier than it is comfortable with simply to deal with the uncertainty,” Vince Cable, economics spokesman for the Liberal Democrats, told BBC radio. The UK Treasury declined to comment on the talks, but a spokesman repeated that Darling, Britain’s finance minister, has said he will do whatever is necessary to maintain stability. SHARES DROP Shares in Royal Bank of Scotland (RBS) were the biggest UK sector loser on Tuesday, falling almost 40 percent at one point. They were off 25 percent at 111 pence at early afternoon, giving the bank a market value of about $40 billion (22.7 billion pounds). Shares in Lloyds TSB recovered from lows to show a fall of 5 percent and Barclays shares also recovered from lows to stand 4 percent down. Five-year senior credit default swaps on RBS were quoted about 30 basis points tighter at 270 basis points and about 50 basis points tighter at about 200 basis points on Barclays. That signals a lower cost of insuring their debt against default, with investors having to pay 270,OOO and 200,000 euros per 10 million euros of the respective banks’ debt, although traders said the market was illiquid. Short sterling futures jumped as the bank shares tumbled and as weaker-than-expected economic data strengthened demands for a Bank of England rate interest cut later this week. In Britain’s response to the crisis up until this week, Lloyds TSB has agreed a government-brokered takeover of another bank, HBOS (HBOS.L: Quote, Profile, Research), while smaller mortgage lenders Bradford and Bingley and Northern Rock have been nationalised. RBS raised a record 12 billion pounds in fresh capital earlier this year. Barclays raised 4.5 billion pounds in July from investors including Qatar and Japan’s Sumitomo Mitsui (8316.T: Quote, Profile, Research) and only last month raised a further 701 million pounds from a share sale.