Treasury reveals rescue for UK Banks
The Chancellor, Alistair Darling has announced details of the much anticipated rescue package for 
the banking system worth an initial £25bn and could increase to as much as £50bn.
This will initially make the extra capital available to eight of the UK’s largest banks and building societies namely; Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.
In return for injecting this extra capital the government will potentially receive preference shares in the above institutions. (Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.)
The money will be used to prop up a banking system that has seen confidence evaporate and share prices plunging in recent weeks. This has led to banks struggling to access funding, as the money markets are not functioning.
In addition to billions of taxpayers money from the Government, a further £200bn will be made available by the Bank of England for short-term borrowing to provide liquidity to banks and building societies.
The Treasury has said that all UK banks are eligible apply for inclusion in the plan.
In an interview with BBC’s Nicky Campbell this morning the Chancellor did not rule out the possibility of having to take “further measures to secure the future of the banking system” which he pointed out was “vital to businesses and depositors all over the UK”. However, Mr Darling refused to confirm that the government would underwrite depositor’s funds.
It is hoped the measures will help restore confidence to get banks lending to each other again.
In return for the funding, the Government is also demanding banks cap executive pay and shareholder dividends.
They are also being asked to increase lending to homebuyers and small businesses.
Tags: alistair darling chancellor, bank of england news, banking system news, treasury rescue package for banks
