Bail-Out Scheme For Banks

Bail-Out Scheme For Banks

Monday, 19 January, 2009

THE government was today setting out plans to pour billions of pounds more of taxpayers' money into Britain's struggling banks, in a bid to restore confidence and get credit flowing again.

Officials worked throughout the weekend to finalize the second bail-out in three months, which is expected to see the government increase, its stake in the banks while underwriting up to £200bn of `toxic assets'.

Treasury plans were given urgency by Friday's dramatic stock market falls, amid fears that banks were set to reveal massive write-downs in the forthcoming results season.

The plan has two main elements. One involves an insurance scheme for `toxic assets' left after the collapse of the sub-prime mortgage market in the United States.

The banks would pay a fee to have bad credit loans underwritten by the taxpayer up to a certain level.
This would help limit potential losses, freeing capital which could then be used to lend to individuals and businesses.

The second element could see the government ease the terms of its autumn bail-out in which it took preference shares in some of the banks.

These carried an onerous 12 per cent rate of interest, but some could now be exchanged for ordinary shares - which, in the case of Royal Bank of Scotland, could see the government stake go from 58 to 70 per cent - a major step nearer to full nationalization.

Another possibility is for the government to guarantee inter-bank loans and new consumer lending.

Prime Minister Gordon Brown warned that banks must finally come clean about the scale of their losses. He spoke of the need to `get to the roots of the problem that make us angry about the way that the system is operating'.

Source: manchestereveningnews.co.uk