£50bn rescue plan for banks is confirmed

Oct 8 2008

Chancellor Alistair Darling today announced a £50 billion emergency rescue plan for stricken UK banks.

The scheme will see taxpayers’ money used to buy stakes in major banks in an attempt to halt the meltdown in the financial sector.

The bail-out comes after another day of panic on the stock market, with banks suffering devastating share losses amid concerns over their funding.

Royal Bank of Scotland shares plummeted by almost 40%.

Mr Darling said that the measures the Government was taking were in response to ``extraordinary times''.

“Those are absolutely critical so far as the system is concerned and we want to make sure that we can get the system going again,” he told Sky News.

“It is a process that inevitably will take time. It is not an instant change but it is a restructuring, it is stabilising the system, and that is very important.”

HBOS, which is in the process of being taken over by Lloyds TSB, said it welcomed today's announcement.

“The Government’s announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system.

“HBOS believes that this initiative is very much in the interests of its shareholders and customers.”

The Chancellor said the taxpayer would not lose out.

“The taxpayers’ interest is being protected,” he said.

“I’m very clear that in return for all this, the taxpayer has got to see some upside. In relation to lending to small businesses, in relation to mortgages... that’s important too.”

Mr Darling said he still did not “rule anything out” but, of today’s package, he said: “I believe it will go a long way.”

He admitted he had been “irritated” by speculation about the package since Sunday because the Government was working on the package.

“I wanted to announce it when the time was right, when we had got everything sorted out, we had a scheme that worked and the big banks were signed up to it,” he said.

“And we actually finished these discussions only a few hours ago.”

Mr Darling said it was “absolutely not” true that the chairman and chief executive of Royal Bank of Scotland would lose their jobs as part of a deal with the Government.

“It’s not the Government’s business to deal with banks’ appointments,” he said. “It is entirely a matter for banks.”

Eight UK banks and building societies - including RBS, Barclays, HBOS, Lloyds TSB and Nationwide - have signed up to an initial £25 billion scheme.

And the Government said it stood ready to make at least another £25 billion available for other eligible institutions.

The Bank of England is also extending the existing £50 billion Special Liquidity Scheme to £200 billion, while a further £250 billion being pumped in under a debt guarantee scheme.

It is hoped that the extraordinary measures will provide the capital boost needed and help restore confidence to get banks lending to each other again.

But the Government is demanding that in return for the public-backed cash injection, banks must cap executive pay and shareholder dividends and commit to supporting lending to homebuyers and small businesses.

Details of the stake-buying scheme reveal that taxpayers will buy preference shares in the banks, which means that they will be first in line for the pay-out of dividends.

Read the Treasury's press release - click here