Government announces UK bank rescue plan

08 October 2008

Banking system will benefit from £50bn rescue package

The UK government has unveiled details of a rescue package, worth up to £50bn, for the banking system.

The extra funds will initially be made available to eight of the UK’s biggest banks and building societies. The government will receive preference shares in the institutions in return for the funds.

It is hoped that the funds will help to support the banking system that, in recent weeks, has seen share prices plummeting.

Another part of the package will be a further £200bn, made available by the Bank of England, for short-term borrowing with the aim of providing liquidity to the UK’s banks and building societies.

Additionally, a special company will be set up which will provide up to £250bn in loan guarantees to banks and building societies.

A large part of the current banking crisis has resulted from the banks’ unwillingness to lend money to each other; therefore the government is hoping that if guaranteed loans can be offered then lending between banks will pick up.

Chancellor Alistair Darling said: “This is beginning a process of un-bunging a big problem where banks won’t lend to each other for long periods.”

Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered have so far confirmed they will participate in the scheme.

However, other banks and building societies will be able to apply for a place in the scheme said the Treasury.