Bank bailout II: The details
Gordon Brown and Alistair Darling today outlined new plans to get the banks lending once more.
However, after £37 billion was spent last year, will the new plans work?
The new plan has a number of branches.
Guarantees
The first are the guarantees.
Under an asset protection scheme, the government will aim to offer protection on "those assets most affected by the current economic conditions" - in other words those assets which are hard to put a price on in the current instability.
Banks will be charged a fee to insure them against future credit losses on assets - although lenders will take a hit on 'first losses' of around ten per cent.
Banks also have to tell the government the size of predicted losses.
Covered by the insurance scheme will be portfolios of commercial and residential property loans most affected by current economic conditions, asset-backed and structured securities and some corporate loans.
The guaranteed bad assets will remain on the banks' balance sheets, but will be ring-fenced so Treasury will control how they are used.
The scheme should last no longer than five years.
More lending
Those banks taking advantage of the guarantees will have to sign up to an agreement on increasing their lending to consumers and businesses.
Indeed, throughout this morning's press conference Mr Brown and Mr Darling continually pushed the line the measures were for the benefit of homeowners, consumers and businesses, not for the banks.
The promise to push lending would be binding and audited, the chancellor stated.
"Each bank will have to reach judgement if it wants to take advantage of the insurance," Mr Darling said.
"If so they have to sign up to the agreements. The object of this is to get money to individuals and people."
Bank of England
The Bank of England will also be taking a new role.
The central bank - under the monetary policy committee - will have £50 billion to spend on an asset purchase scheme to buy "high quality" private sector assets, including corporate bonds and asset-backed securities.
However, the scheme is not the much debated 'quantitative easing' that has been hyped of late - whereby cash would be printed to buy assets to boost the economy.
"The money from the Bank of England is to help corporate sector, not increase money supply," Mr Darling said this morning.
"This measure is neutral on additional money in the economy."
However, he admitted the mechanism could be adapted for quantitative easing, but interest rates were not yet at the point where such an option would be considered.
- Tags:
- bonds gilts ,
- news
Comments
Newsletter sign up