U.K. unveils second bank rescue plan

British government launches wide scale insurance plan to protect banks against further losses and boost lending.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Grace Wong, CNNMoney.com contributing writer

uk_bank_bailout2.gif
What should President Obama's first priority be?
  • Finalize a foreclosure plan
  • Work with Congress on economic stimulus
  • Fix the bank bailout program
  • Detail how he will cut the federal budget

LONDON (CNNMoney.com) -- The U.K. government unveiled a second bank rescue plan Monday designed to jumpstart lending and bolster the stability of the nation's financial system.

The announcement made early Monday marks a dramatic new step for U.K. officials trying to contain a growing banking crisis. The announcement also comes as the U.S. government is poised to redirect its financial sector bailout efforts.

Under the plan, the British Treasury will set up a wide scale insurance program aimed at protecting banks against further losses and guarantee bank assets backed by mortgages and other loans.

"These are comprehensive measures focused on one purpose: increasing the amount of lending that is available to families and to the businesses who are the backbone of our country and who want to invest and create jobs," Prime Minister Gordon Brown said.

The mainstay of the new bailout is the insurance program, called the Asset Protection Scheme. Under this program, the Treasury will provide banks insurance against future credit losses on their riskiest assets.

U.K. financial institutions that take deposits and have more than £25 billion ($37 billion) of eligible assets will be the first banks to be considered for the insurance program. The scheme may also be extended to other deposit-takers later on, the Treasury said.

Banks will have to pay a fee to participate and will be subject to a range of conditions. For one, they will have to commit to lending to creditworthy consumers and businesses. Further details of the program are expected to be issued by the end of February.

The rescue package also calls for the Bank of England to set up a special fund that will be authorized to buy up to £50 billion ($74 billion) of high-quality private sector assets.

Shares in Europe advanced on the new bailout plan. In midday trading, Britain's FTSE 100 index rallied nearly 2%. France's CAC-40 and the DAX in Germany were both up more than 1%.

But Royal Bank of Scotland was a laggard after it warned Monday that it may have suffered the biggest loss in British corporate history -- as much as £28 billion ($41 billion) -- last year. Shares of Royal Bank of Scotland sank 32% in London trading.

U.S. markets are closed Monday for Martin Luther King Day.

The new measures unveiled by the U.K. mark the second attempt the government has made to stem the growing financial crisis.

Last October, the British Treasury pumped $63 billion into three major banks: the Royal Bank of Scotland, HBOS and Lloyds TSB. It also agreed to backstop bank debt.

The day after the U.K. bailout was announced, President Bush said he would use the first $250 billion of the $700 billion Troubled Asset Relief Program to make direct investments in banks.

Now, with President-elect Barack Obama set to take office Tuesday, the U.S. government is poised to take a new turn in its bank rescue effort. (Full story)

The Obama administration, which has $350 billion to work with after a Senate vote last week, has said it will take a different approach to TARP. For example, Lawrence Summers, a top economic aide to Obama, said in a letter to Congress last week that the administration would set aside as much as $100 billion to address mortgage crisis.

-- CNN Wires contributed to this report To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.