Brown: "Radical" £50bn bank bail out

Wednesday, 08 October 2008 10:54

Gordon Brown and Alistair Darling have put forward their plans to fix the credit markets seeing the taxpayer becoming shareholders of the major banks.

After a day of massive share price falls for the banks on speculation of a bail out plan, the prime minister and the chancellor have outlined their plans to shore up the banking system.

Under the plans, the government is offering to take share of banks - providing them with capital - as well guaranteeing inter-bank loans up to £250 billion and offering £200 billion in liquidity through the bank of England.

The government will not be taking a seat on any bank's board.

"Up and down the country families and small businesses are worried and anxious about their futures, and I know and understand this," Mr Brown said.

"Good strong banks are essential for every family and for every business in the country and extraordinary times call for the bold and far-reaching solutions that the Treasury has announced today."

He added the global financial market had ceased to function and the plans "break new ground".

"These are far more radical proposals than people have expected because we are not only restructuring the banking system with new capital, we are providing guarantees about medium term funding to get the markets moving again, as well as providing the short term liquidity."

The prime minister said the plans would bring about a "comprehensive restructuring" of banking and went further than the US bail out.

He also pledged the taxpayer will not lose out from the deal.

"All these are investments being made by the government which will earn a proper return for the taxpayer. he said. "On commercial terms, we expect to be rewarded for the support we provide."

He added strings would be attached for the banks, with caps on executive remuneration schemes, control on dividend payments, and credit lines to small business will be maintained.

He described them as "tough conditions".

"Out of this restructuring I believe we can look forward to a fairer, more equitable and reliable financial system."

Mr Darling said: "It is a really fundamental step that we are taking, but this is part of a process, it is part of a whole range of things that we are doing to support the economy, stabilising the banking system is one important part of that, and as I have said on many occasions, we will continue to do whatever it takes to ensure that we see this process through.

Mervyn King, governor of the Bank of England - speaking after the press conference - said the deal would help to resolve the banking crisis.

"A major recapitalisation of the UK banking system of at least £50 billion is a necessary condition for regenerating confidence in the financial system," he said.

"The recapitalisation, further liquidity support from the Bank of England and the new guarantee scheme amount to a significant step forward in resolving the present crisis".

Conservative shadow chancellor George Osborne has offered his constructive support to the deal, telling the BBC it was the "final chapter of an age of irresponsibility".

He also said the test of any plan would be if the rescue plan will spur high street banks to open their doors and start lending to consumers and businesses again.

Liberal Democrat Leader Nick Clegg said: "This is a day of reckoning for the British economy.

"There can be no doubt that today marks a fundamental shift in the way we view banks and, in turn, the obligations banks have to the public must change for good. They must serve the public interest as well as their own commercial interests."

He added: "With the support banks are now receiving, it is no longer justifiable to impose aggressive repossession policies on homeowners and insolvency policies on businesses."

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