The Rescue Package for UK Banking
Category: Economy. Date published: 08/10/2008
Details of a rescue package for the banking system worth up to £50bn was announced late yesterday and it will see extra capital made available to eight of the leading banks and building societies in the UK.
Prime Minister Gordon Brown said that the new measures were "designed to put the British banking system on a sounder footing". I commented a few weeks back in my articles that this would be the key to reversing the financial plunge we have all experienced of late…the banks need to get back confidence to lend to each other once again!
Reactions to the news were initially quite mixed as the FTSE 100 in London fell 5%, Barclay’s shares fell 11% but HBOS shares rose 26%. It is expected to be enough to start the anticipated and hoped for slow financial turn-around.
A list of the lenders that have confirmed they will participate in parts of the scheme include:
· Abbey
· Barclays
· HBOS
· HSBC
· Lloyds TSB
· Nationwide Building Society
· Royal Bank of Scotland
· Standard Chartered
According to the Treasury other banks and building societies will be able to apply for inclusion in the plan.
OK so to summarise the most salient points of the Government plan:
· Banks will now have to increase their capital by at least £25bn and can borrow from the government to do so.
· Extra share capital (an additional £25bn) will be available in exchange for preference shares.
· The Bank of England will provide £200bn in short-term loans.
· Up to £250bn in loan guarantees will be available at commercial rates which is hoped will be enough to encourage banks to lend to each other once again.
· If the banks want to participate then they will have to sign up to an FSA agreement on executive pay and dividends.
What does this all mean for UK residents?
1. Well the Banks have received the news with optimism and these Government measures should solidify the UK Banking system encouraging inter-bank lending again.
2. Its going to take time but the confidence will slowly return to the City and UK Banking System providing we don’t get affected by any new unforeseen International collapses.
3. There is even a chance that as tax-payers we may potentially profit from the preference shares taken by the Government in the Banks on our behalf…we’ll see.
