It must qualify as the understatement of the year. A brief message on the website of the Icelandic online bank Icesave curtly informed its 300,000 British customers that they could neither deposit nor withdraw their money, adding: "We apologise for any inconvenience this may cause." Suddenly claims about bank customers not losing a penny of their deposits since the 1920s seemed less reassuring, and the news sent a shiver through not just the financial markets but every home in the land.

Between the safety net offered by the Icelandic government and the UK Financial Services Compensation Scheme, the first £50,000 of Icesave deposits is guaranteed - but there are issues about how long customers will have to wait for a payout, and a real fear that deposits over that limit will be lost. In this fevered atmosphere, it is important that bank customers hold their nerve. Fewer than 5% of bank deposits would not be covered by the improved guarantee announced by the British government last week. Mass withdrawals, driven more by irrational panic than any real danger of losing money, risk plunging a global financial system teetering on the brink straight into the abyss. Stashing savings under the bed is certainly not the answer.

The extent of the crisis of confidence in the banking system was mirrored on the markets yesterday as bank shares nosedived on top of Monday's record plunge. Both HBOS and Royal Bank of Scotland took the brunt of the pain, with the Royal Bank losing nearly 40% of its value. It is now perceived as the most vulnerable, having paid the wrong price at the wrong time for the Dutch bank ABN Amro.

Ironically, it is not any threat to savers' deposits but the breakdown of the wholesale markets that banks rely on for day-to-day operations that threatens to derail the sector. It is clear from the messy and confusing outcome of the weekend meeting of EU ministers that concerted European action to stabilise the banking system is a pipe dream. As a global financial centre, it is up to London and the British government to take the lead. It became clear that, as the crisis deepened last night, the Treasury was finally ready to bow to pressure and release details of a rescue package that will provide a fresh injection of capital for the big four high-street banks of up to £50bn. It is important that public money is not put at risk without some compensation, whether that involves attaching warrants to the shares acquired by the government or opting for the preference-share model used by the Swedish government in the banking crisis of the 1990s. This will enable the taxpayer to benefit from the likely upturn in the banks' share values once the global economy begins to recover its composure. Prompt, decisive action is now imperative. One Scottish bank has already been swallowed up as a result of this crisis. It is inconceivable that a second should be allowed to follow it.

Yesterday also brought further news of an injured economy, with industrial output down again, and bad news from British Airways and BHS. The bank rescue package needs to be accompanied by measures to stimulate the stalling real economy, starting with a substantial interest-rate cut on Thursday.