UK announces 200 bn pound lifeline to financial institutions

LONDON: With financial crisis deepening in UK, the government on Wednesday announced an assistance of over 200 bn pound to the financial institutions to ensure stability in the system and provide short-term liquidity.

After consultation with the Bank of England and the Financial Services Authority, the UK Treasury today announced that it is bringing forward specific and comprehensive measures to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers.

Under the proposed initiatives, the Bank of England would take all actions necessary to ensure that the banking system has access to sufficient liquidity in the short term and at least 200 bn pound would be made available to banks under the special liquidity scheme, the HM Treasury statement said.

The major UK banks and the largest building society have confirmed their participation in the Government-supported recapitalisation scheme. The institutions include Abbey, Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.

These institutions have committed to the government that they would increase their total Tier I capital by an aggregate of 25 billion pound, while the individual increases would vary from institution to institution.

Until markets stabilise, the Bank would continue to conduct auctions to lend sterling for three months and also US dollars for one week, against extended collateral. It would review the size and frequency of those operations as necessary.