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.
The week in Risk.net, February 10-16 2017Receive this by email
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