UK steps in to save banks with $87-bn package
Britain's banks will get an unprecedented 50 bn-pound government lifeline and emergency loans from the central bank after the freeze in credit markets threatened to bring down the financial system.
By Bloomberg |
LONDON: Britain's banks will get an unprecedented 50 bn-pound ($87 bn) government lifeline and emergency loans from the central bank after the freeze in credit markets threatened to bring down the financial system.
The government will offer to buy preference shares from Royal Bank of Scotland Group, Barclays and at least six other banks, and provide about 250 bn pounds of loan guarantees to refinance debt, the Treasury said in a statement on Thursday.
The Bank of England will make at least 200 bn pounds available. The plan doesn���t specify how much each bank will get.
Prime minister Gordon Brown is following US president George W Bush, who approved a plan last week to spend $700 billion to prop up financial institutions with untested measures as equities plunged around the world.
���The global market has ceased to function,��� Brown said on Thursday at a press conference in London. ���The banking system must be sounder, and that is why we are putting the capital in.���
Brown���s government was forced to act as the economy tumbled toward a recession and shares of the country���s biggest banks lost more than half their value in a week. Edinburgh-based RBS, Britain���s third-largest bank by market value, had its credit rating cut by Standard & Poor���s for the first time in almost a decade on concern that its financial health was deteriorating.
The steps to partially nationalise the industry provide the ���building blocks to allow banks to return to their basic function of providing cash and investment,��� chancellor of the exchequer Alistair Darling said on Thursday.
Britain joins the US and many European countries in rushing out bailout measures. Germany, Ireland and Greece have pledged to guarantee savers��� deposits. Iceland has taken over two of the nation���s three biggest banks, and Spain has agreed to spend as much as e50 bn ($68 bn) to buy bank assets.
The UK initiative comes after the government took control of Northern Rock and Bradford & Bingley earlier this year and arranged the takeover of Edinburgh-based HBOS, the country���s biggest mortgage lender.
Darling and Brown are trying to prevent the financial-services industry, which accounts for about a fifth of London���s economy, from collapsing under the weight of the global credit crunch. Financial-service companies will cut 12,000 jobs before the end of the year, about 33% more than a year earlier, according to estimates last month from the Confederation of British Industry, the country���s biggest business lobby
The government said on Thursday it will make 25 billion pounds immediately available to banks in the form of preference shares and is ready to provide another 25 billion pounds. The amount available to each bank will vary, depending on their dividend payouts and executive pay policies.
The government will offer to buy preference shares from Royal Bank of Scotland Group, Barclays and at least six other banks, and provide about 250 bn pounds of loan guarantees to refinance debt, the Treasury said in a statement on Thursday.
The Bank of England will make at least 200 bn pounds available. The plan doesn���t specify how much each bank will get.
Prime minister Gordon Brown is following US president George W Bush, who approved a plan last week to spend $700 billion to prop up financial institutions with untested measures as equities plunged around the world.
���The global market has ceased to function,��� Brown said on Thursday at a press conference in London. ���The banking system must be sounder, and that is why we are putting the capital in.���
Brown���s government was forced to act as the economy tumbled toward a recession and shares of the country���s biggest banks lost more than half their value in a week. Edinburgh-based RBS, Britain���s third-largest bank by market value, had its credit rating cut by Standard & Poor���s for the first time in almost a decade on concern that its financial health was deteriorating.
ADVERTISEMENT
The steps to partially nationalise the industry provide the ���building blocks to allow banks to return to their basic function of providing cash and investment,��� chancellor of the exchequer Alistair Darling said on Thursday.
Britain joins the US and many European countries in rushing out bailout measures. Germany, Ireland and Greece have pledged to guarantee savers��� deposits. Iceland has taken over two of the nation���s three biggest banks, and Spain has agreed to spend as much as e50 bn ($68 bn) to buy bank assets.
The UK initiative comes after the government took control of Northern Rock and Bradford & Bingley earlier this year and arranged the takeover of Edinburgh-based HBOS, the country���s biggest mortgage lender.
Darling and Brown are trying to prevent the financial-services industry, which accounts for about a fifth of London���s economy, from collapsing under the weight of the global credit crunch. Financial-service companies will cut 12,000 jobs before the end of the year, about 33% more than a year earlier, according to estimates last month from the Confederation of British Industry, the country���s biggest business lobby
ADVERTISEMENT
group. The government said on Thursday it will make 25 billion pounds immediately available to banks in the form of preference shares and is ready to provide another 25 billion pounds. The amount available to each bank will vary, depending on their dividend payouts and executive pay policies.
ADVERTISEMENT
The plan requires the banks to lend to small businesses and home owners, the government said. The rescue may break Brown���s pledge to keep debt below 40% of the country���s GDP. The budget deficit climbed to the highest since 1993 in August, with debt amounting to 43% of GDP when the liabilities of Northern Rock are factored in. Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
