Brown says British banking bail-out is right decision - Summary
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Wed, 08 Oct 2008 08:36
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London - British Prime Minister Gordon Brown Wednesday hailed the government's massive bank rescue plan based on a cash injection of 50 billion pounds (87 billion dollars) as the "right decision in extraordinary times.""It is a tough deal for everybody, but it is the right deal for the British public," Brown said at a Downing Street news conference. The "comprehensive action" taken by the British government should restore "confidence and trust" to the financial system, he said. Extraordinary times call for bold and far-reaching solutions, Brown said. "Our stability and restructuring programme is comprehensive; it is specific and it breaks new ground.""This is not a time for conventional thinking or outdated dogma, but for the fresh and innovative intervention that gets to the heart of the problem."Brown was keen to stress that the British plan, which includes a cash injection into banks of 50 billion pounds (87 billion dollars) and lending guarantees given to banks at commercial rates, 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, Brown 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. It will initially make the extra capital 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 have struggled to access funding. As part of the package, a further 200 billion pounds will be made available by the Bank of England for short-term borrowing to provide liquidity to banks and building societies. There will also be a special company set up to provide up to 250 billion pounds in loan guarantees to banks and building societies that lend money to each other. According to the Financial Times Wednesday, the recapitalization programme will more than double planned public borrowing this year, pushing public sector net borrowing close to 100 billion pounds or 6 per cent of national income. "This is beginning a process of unbunging a big problem where banks won't lend to each other for long periods," Darling said. The government hopes that taxpayers may even end up making a profit from the shares in the longer term. It is hoped that the scheme, using taxpayers' money in what amounts to the partial nationalization of leading banks, will restore confidence, revive lending and stimulate the flagging economy. The move, finalized at a top-level meeting called by Brown at Downing Street late Tuesday, came after two days of turbulent sessions on the stock exchange, which saw leading bank shares fall sharply. While main banking shares staged a strong recovery on the London stock market Wednesday, the Financial Times Share Index (FTSE) was down by more than 4 per cent in mid-trading.
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