UK Government Rescue Plan for Banks
The UK Government is to inject £50bn worth of capital into the banking system in an attempt to get the banking system moving again. In return the Government will receive preference shares. So far, eight banks are listed as taking part in the plan.
As markets continue to slide around the world and banks everywhere fall deeper into trouble, in the UK the Government has come up with a £50bn rescue plan for the banking system.
Initially the extra capital will be made available to eight of the biggest banks and building societies in the country. The Government will receive preference shares in those businesses for its investments.
With the banking system lurching from one crisis to another and share prices plunging day after day, the cash injection will be used to prop up the system as banks have struggled to access funding for even their day to day activities.
In addition to the £50bn, the Bank of England will make an extra £200bn available for short-term borrowing to give banks and building societies the liquidity they need to keep doing business.
The eight banks which are part of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered, and the Treasury also said that other banks are allowed to apply to be included in the plan.
The shares that the Government will have in the financial institutions will be preference shares which, rather than a dividend, pay a fixed rate of interest which must be paid before other shareholders get anything (in preference), but confer no voting rights.
It should be remembered that the Government money is taxpayers’ money so in return for this massive investment by the Government, the banks will have to toe the line. Restrictions will include a limit on executive pay and dividends for other shareholders.
Obviously the bottom line is the hope that the deal will kick-start the money markets back into action and underline the security of the banking system. With new money into the system the Government is hoping to stop the panic currently stalking UK banks.
