Hundreds of billions of taxpayer money to bail out the banks again
January 19, 2009
Full article: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5543206.ece
The taxpayer will be asked to gamble hundreds of billions of pounds today in a second bank bailout. The Government will offer a massive package to guarantee lending and insure banks' bad debts.
High street lenders were locked in negotiations last night over the terms of the insurance plan, which will provide payouts from the public purse if the value of a bank's “toxic assets” falls below certain levels. The package of guarantees and additional loans will be announced before the stock market opens. Other elements include:
- The news that the Government has increased its stake in the Royal Bank of Scotland from 58 to 70 per cent;
- A new £100 billion mortgage guarantee scheme to underwrite lending between banks and financial institutions, first proposed by Sir James Crosby, the former HBOS chief executive;
- An extension to the £250 billion credit guarantee scheme announced in October until the end of the year;
- Provisions for Northern Rock to start lending to customers again, if approval is granted by the EU;
- A new Bank of England scheme to replace the Special Liquidity Scheme that allows banks to swap illiquid assets for gilts.
The Treasury had been looking at the proposals for some weeks after it became clear that the initial £37 billion bailout in October had failed to provide a sufficient platform for normal lending to resume. However, the plans were given added urgency by Friday's sharp stock market falls amid fears that the banks were set to reveal further huge writedowns.
More bad economic news is expected this week, with unemployment figures on Wednesday expected to show that two million people are now out of work.