British government in bank rescue deal as rates are cut - Summary
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Wed, 08 Oct 2008 12:36
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London - The British government Wednesday unveiled a massive bank rescue plan based on a cash injection of 50 billion pounds (87 billion dollars) and the provision of a further 450 billion pounds in loans and guarantees as the Bank of England cut interest rates to 4.5 per cent. The government's attempt to free up frozen credit markets by providing extra liquidity to banks was welcomed by leading banks which had recently received a share price battering as a result of the ongoing turmoil on global financial markets. The government hopes that the emergency measures, coupled with the surprise interest rate cut, will lead to a stabilization of the banking system while stimulating the flagging economy. Prime Minister Gordon Brown described the "comprehensive action" taken by his government as "the right decision in extraordinary times.""Our stability and restructuring programme is comprehensive; it is specific and it breaks new ground," he said. "This is not a time for conventional thinking or outdated dogma, but for the fresh and innovative intervention that gets to the heart of the problem."Brown was keen to stress that the British plan differed substantially from the US bail-out scheme agreed last week. "This is not an American plan. We are not buying up bad assets, we are not just giving money," Brown said. The British government had instead decided to invest in a stake in the banks by buying shares and was expecting to get a return on that, he said. Chancellor of the Exchequer Alistair Darling, who detailed the plan in a written statement to the London stock market Wednesday, said the package was a "major step forward" in the government's commitment to maintain stability in the banking system. The package, finalized only in the early hours of Wednesday, foresees an injection of capital of 50 billion pounds of taxpayers' money over three years. The funds will initially be made available to eight of Britain's largest banks and building societies. In return for the funding, the government will receive preferential shares in those institutions. The money will be used to prop up a banking system that has seen share prices plunge in recent weeks as banks hav
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