Bank bailout number 2; Brown hopes this one will boost lending

19 January 2009 / by Rebecca Sargent
The Government has today announced its second attempt at boosting the economy by offering insurance and encouraging banks to lend through a number of measures.

The list of measures announced this morning includes an Asset Protection Scheme which will "offer protection on those assets most affected by the current economic conditions."

The scheme will offer insurance to the UK's banks against further losses from the bad debt that started the credit crunch.

Negotiations will be at the heart of the scheme as banks will be legally obliged to lend in return for the Government guarantee which will come at a fee but not in exchange for shares.

Speaking at a press conference this morning, Gordon Brown defended the Government intervention, arguing that the Government is the only organisation that can stand in during the global banking failure that we are experiencing.

According to Brown, the package is not primarily aimed at helping banks, but at helping those who are worried now, those who are struggling as a result of falling savings account rates and tight mortgage restrictions.

Other measures announced today include the extension of the £250billion credit guarantee scheme announced in October, and the creation of an Asset Purchase Facility set up by the Bank of England and funded by the Treasury, which will allow it to buy high quality loans direct from the banks.

Commenting, Governor of the Bank, Mervyn King said: "The Asset Purchase Facility will provide an important additional tool to improve financing conditions in the economy."

Although the full cost of the latest bail-out will not be known until banks start participating, it is expected to cost the taxpayer £billions on top of the Governments £37billion recapitalisation scheme announced last October.

The announcement comes after a weekend of negotiations between the Treasury and banks which mirror the emergency talks held in October which led to the recapitalisation scheme.

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