Bank shares have jumped in the wake of plans from the Bank of England to launch two new stimulus packages.
The Bank of England's announcement of its plan, on Thursday, came in response to the worsening economic outlook, governor Sir Mervyn King said.
Together with the government, it will provide billions of pounds of cheap credit to banks to lend to companies.
Royal Bank of Scotland and Lloyds shares were up almost 4%, while Barclays was 2.75% higher.
Banks will also have access to short-term money to deal with "exceptional market stresses". The chancellor said the measures would "inject confidence".
But Labour's Shadow Chancellor Ed Balls said the measure would not be enough to help without the Government also changing course on its austerity plans.
In his annual Mansion House speech, Chancellor George Osborne said the stimulus packages would "support the flow of credit to where it is needed in the real economy".
"We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep," he said.
'Ugly picture'
Sir Mervyn, also speaking at Mansion House, said the eurozone debt crisis had pushed up funding costs in the banking sector, which in turn meant the cost of borrowing for businesses and individuals had risen.
The crisis had also created a "large black cloud of uncertainty" over the global economy, meaning companies and households were cutting back on spending.
Signs of a slowdown in China, India and other "previously buoyant emerging economies" added to the "ugly picture" and meant further action was needed, the governor said.
The Bank has already pumped £325bn into the economy through its quantitative easing (QE) programmes, under which it buys up government bonds. The idea is that the institutions that sell bonds to the Bank then use the money to buy up other assets.
However, there have been criticisms that they have held on to the money, rather than spending it, undermining the effectiveness of QE.
Separately, a Bank of England survey found that the risk of a foreign government failing to repay its loans, or a recession, were still, by a wide margin, the top concerns of senior City executives.
The bank's half-yearly "systemic risk survey", of 73 banks, building societies, insurers and other financial institutions, found that these were still identified as the the two top risks to the health of the UK financial system.
Cheap loans
Rather than further QE to stimulate the economy, the Bank will now offer cheap loans to banks on the basis that they increase lending.
"Today's exceptional circumstances create a case for a temporary bank funding scheme to bridge to calmer times," Sir Mervyn said.
"The Bank and the Treasury are working together on a 'funding for lending' scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty."
But Mr Balls told the BBC that the measure won't work - because Mr Osborne's approach to the economy had been flawed from the beginning: "If you fundamentally think that the reason why our economy is stalled is simply because of the supply of credit to banks you might think you could sort this with monetary policy.
"The reason it's happened in Britain so much harder than other countries is because of the fiscal crunch the chancellor imposed on the economy two years ago, which has choked off our recovery before the eurozone crisis."
Peter Hann, banking expert at the Cass Business School, said the measures would have been better applied shortly after the banking crash of 2008, adding that "right now, in a time of weakening confidence, changing confidence is not going to happen just by easing money".
The BBC's business editor Robert Peston said the scheme would be seen as successful if it increased bank lending by £80bn, or 5%.
The governor said he hoped the scheme would be in place "within weeks".
Banking sector liquidity
The second measure he said the Bank would be introducing was a scheme outlined in December last year - called the Extended Collateral Term Repo Facility - to address a shortage of liquidity in the banking sector.
This will make it easier and cheaper for banks to borrow at least £5bn every month to cover any shortfalls in cash.
Further details of the short-term liquidity scheme would be announced on Friday, he said.
"I want to make it clear that the Bank, through its discount window and other facilities, will provide banks with whatever liquidity they require given the prospect of turbulence ahead."
Conservative MP Andrew Tyrie, chairman of the Commons Treasury Select Committee, said the plans looked encouraging: "The measures look as if they will encourage lending to businesses by ensuring liquidity is more easily available to banks."
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