The UK says the previous £37 billion package was not enough
LONDON - The UK has announced a new second bank rescue package to kick-start inter-bank lending and to curb the effects of looming recession. Figures for the cost of the new bill are unspecified, although press reports have quoted a cost of £200 billion ($295 billion). The previous bailout cost the government at least £37 billion last year.
The plan again relies on three elements - guarantees, government loans, and the Bank of England purchasing up to £50 billion of 'high quality' securities, corporate bond assets.
A voluntary insurance package would guarantee assets in return for banks increasing their lending to consumers and businesses - passing on the liquidity benefits afforded by the confidence of the guarantee. UK chancellor Alastair Darling said the plan offered "backstop insurance" and was not a "blank cheque".
"Good businesses must have access to credit, jobs should not be lost needlessly," said UK prime minister Gordon Brown, presenting the package alongside Darling. Brown did not put a price tag on the new deal, but insisted other countries take the same drastic measures to prevent a "damaging spiral of de-globalisation in the economic downturn".
The announcement came on the same day as UK bank RBS said it expected to make an annual loss of £28 billion for 2008. The bank is already 58% owned by the UK government, a stake that could rise to 70% national ownership under gopvernment plans to refinance preference shares in RBS. RBS claims the majority of its losses are attributable to its 2007 takeover of Dutch bank ABN AMRO.
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