Will the UK Bank Bailout Measure be Enough?
08/10/2008
A £500 billion drastic lifeline for Britain's high street banks has been unveiled following an announcement from Chancellor Alistair Darling.
A part-nationalisation plan will see taxpayers take large stakes in the major banks, in return for a large cash injection to save Britain's shattered banking system.
The plan will see the government spend up to £50 billion on buying priority shares in banks in order to boost their capital. In addition, the Government will make £250 billion available to underwrite the banks' medium-term debts to prevent a future disastrous funding gap.
A further £200 billion from The Bank of England will be injected into the money markets under its Special Liquidity Scheme, a deal which sees banks swap risky mortgages for Treasury bonds.
The following banks had confirmed they would seek Government help under the scheme: Abbey, Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.
Gordon Brown welcomed the deal, saying: "Extraordinary times call for bold and far reaching solutions."
He added: "This is not a time for conventional thinking or outdated dogma but for fresh and innovative intervention that gets to the heart of the problem."
The measures are designed to thaw the frozen inter-bank liquidity, and after another plunge overnight, the markets recovered somewhat as the news of the cash injection broke. However, whether the markets calm over time will depend upon whether this package is sufficient to cover tomorrow's needs, not just today's.
A part-nationalisation plan will see taxpayers take large stakes in the major banks, in return for a large cash injection to save Britain's shattered banking system.
The plan will see the government spend up to £50 billion on buying priority shares in banks in order to boost their capital. In addition, the Government will make £250 billion available to underwrite the banks' medium-term debts to prevent a future disastrous funding gap.
A further £200 billion from The Bank of England will be injected into the money markets under its Special Liquidity Scheme, a deal which sees banks swap risky mortgages for Treasury bonds.
The following banks had confirmed they would seek Government help under the scheme: Abbey, Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.
Gordon Brown welcomed the deal, saying: "Extraordinary times call for bold and far reaching solutions."
He added: "This is not a time for conventional thinking or outdated dogma but for fresh and innovative intervention that gets to the heart of the problem."
The measures are designed to thaw the frozen inter-bank liquidity, and after another plunge overnight, the markets recovered somewhat as the news of the cash injection broke. However, whether the markets calm over time will depend upon whether this package is sufficient to cover tomorrow's needs, not just today's.
