£37b bail-out for RBS, Lloyds and HBOS

13 October 2008 / by Rachael Stiles
As part of its £50billion bail-out plan, announced last week, the Government is injecting £37billion into Royal Bank of Scotland, HBOS, and Lloyds TSB.

To restore stability in the financial markets following continued turmoil, RBS will have a £20billion injection, while HBOS and Lloyds will get a further £17billion, which means the taxpayer will have a 60 per cent stake in RBS and own about 40 per cent of Lloyds TSB and HBOS, which are still set to merge.

Barclays, meanwhile, has decided to avoid the humbling experience of asking for help, and said that it will raise £6.5billion without assistance from the Government's rescue plan.

RBS boss Sir Fred Goodwin has quit the bank after it was forced to ask the Treasury for help.

The nationalisation of some of the UK's biggest banks will "count as perhaps the most extraordinary day in British banking history", and will be "an absolute humiliation" for the banks, according to BBC business editor Robert Peston.

The stock market rallied a bit after the announcement, rising about five per cent as investors took stock of the rescue plan, and bank's shares climbed back up slightly.

The Treasury said that it is initialising the bail-out plan in order to "ensure our banking system remains on a sure footing in the face of continuing and exceptional instability across the world's financial markets" and to "support the long term strength of the banking sector and wider economy" throughout the credit crunch.

It is also the Government's hope that the rescue will help to rebuild confidence in the financial system and provide greater protection, for both banks and consumers, and stem the flow of panicked customers moving their money between savings accounts, which was only intensifying the banks' sense of instability.

One of the main priorities remains easing lending in the money markets, restoring confidence so that banks will once again start lending to each other and to individuals, making it easier to secure a mortgage deal.

Taxpayers can take little comfort from the fact that even though their money is being used to bail-out the banks, they will benefit from any profits made as a reward for supporting the banking system through these tough times.

In return for the liquidity, the banks must agree that senior directors will get no cash bonuses this year, and that future bonuses will be paid in the form of shares, which is also hoped to encourage the banks' to develop long-range planning.

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