Government ready for plan B – Bank bail-out No.2

16 January 2009 / by Rebecca Sargent
The Government and Bank of England are preparing themselves for a weekend of number crunching as they negotiate bank bail-out number two, reports have revealed today.

As bank shares tumbled by as much as 11 per cent yesterday, it has become clear that the £37billion bank bail out announced in October was not enough to rescue banks from destruction.

Gordon Brown hinted at the plan in Berlin yesterday during a conference with German Chancellor Angel Merkel when he said that after efforts to recapitalise the banks and provide a "fiscal stimulus" to global economy, the next step is to boost lending by dealing with "impaired assets" held by banks.

The last bail out announced on October 8 2008 was hastily put together as banks were, it has since emerged, on the brink of collapse, and it seems the next bail-out has become just as desperate as the economy continues its downward spiral and bank shares fall at a dangerous pace.

As it stands, nobody knows the full extent of bad debts that are held by UK banks but it is clear that they are facing huge losses without Government intervention.

The news follows the Government's announcement of a £21billion loan guarantee for small to medium businesses which has been met by mixed responses as the industry fails to see how that alone will resolve the dire straits that so many companies are facing.

Speaking at a breakfast meeting in Manchester this morning, John Gieve, deputy Governor of the Bank of England also hinted at the prospect of further action. He said:

"The measures taken in October were successful in preventing a systematic collapse and in the first week of the New Year there were some signs of a more general easing of pressures in financial markets.

"However there have been many relapses in the last 18 months and yesterday we again saw renewed fears in the markets."

The Government is expected to announce bank bail-out number two early next week.

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