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New bank bail-out plan unveiled
Monday, 19 January 2009
Writes Hazel Cottrell
hazel.cottrell@consumerchoices.co.uk
The government is launching a second wave of measures to bail-out UK banks, in an effort to stabilise the financial system and kick-start lending.
The second bank bail-out was launched by the government today. It includes measures that could risk hundreds of billions of pounds of taxpayers’ money. It comes just three months after the £37billion bail-out in October.
Included in the bail-out plan is the “Asset Protection Scheme”, through which the government will allow banks to exchange cash or shares for a government guarantee on their “toxic” debts, transferring potential losses to the taxpayer.
Other government measures include:
- Providing £100billion to underwrite new mortgage lending and lending to small businesses.
- Increasing its stake in Royal Bank of Scotland (www.rbs.co.uk) to 70%. RBS is poised to announce the biggest loss (circa £27-28billion) in British corporate history.
- Tell nationalised Northern Rock to increase its lending – reversing previous instructions for it to shrink its mortgage book.
The government said it was taking the measures after the global economic downturn continued to intensify, particularly over the last two months.
In a statement it claimed the package is “designed to reinforce the stability of the financial system, to increase confidence and capacity to lend, and in turn to support the recovery of the economy.”
Speaking on BBC Breakfast, Chancellor Alistair Darling admitted that “in an ideal world you would not want to be in this position,” but added “If the banking system collapses, every single one of us would see the obvious problems. The economy would come down with it.”
Chris Eagle, commercial manager at CreditChoices.co.uk, said: “If these measures are successful and we do see banks free up capital for lending, then that’s good news for us all.”
“However, even Alistair Darling himself seems unsure just how much of the taxpayers’ cash will be needed to prevent a collapse of the banking sector, which is very worrying indeed.”