The Treasury has announced additional measures designed to stimulate borrowing and protect financial stability.
Insurance scheme and extra funds
Following the £37bn bank ‘bail out’ in October 2008, the new package includes:
- A new ‘asset protection scheme’, insuring banks against ‘exceptional future credit losses’ (toxic debts)
- A new Bank of England asset purchase programme, operative from 2 February 2009, financed by Treasury bills and funded up to £50bn
- Additional support for the Royal Bank of Scotland- converting the Treasury’s preference share investment into ordinary shares (forgoing dividend payment)
- Extending the Credit guarantee scheme ‘drawdown window’ from April 2009 to December 2009 and the Bank of England Discount Window Facility, so that banks continue to have access to long-term liquidity.
Announcing the new measures, the Treasury said that: ‘The Government is clear that meeting lending demand to otherwise creditworthy businesses, homeowners and consumers is essential for supporting economic recovery. Today’s comprehensive measures therefore…aim to improve confidence, allowing UK lenders to increase its lending and so play a more effective role in supporting the wider economy.’
RBS to lend £6bn more
In agreeing to forgo dividends for its RBS shareholding, the government has negotiated a formal commitment from the bank to lend to homeowners and small businesses at or above 2007 levels and to increase lending still further by £6bn in the next 12 months.
Northern Rock is to resume mortgage lending during 2009 and is ‘no longer pursuing a policy of rapidly reducing its existing mortgage book’.
Commenting on the latest initiative, Which? personal finance campaigns manager, Doug Taylor, said:
‘The public purse is being left considerably lighter by this second bailout and the Government must ensure taxpayers are getting value for money and that both borrowers and savers are getting a good deal.’
For more on the banking crisis and the current Which? campaign see: https://www.which.co.uk/campaigns/
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