Chancellor reveals details of £50 billion emergency rescue plan for UK banks » Bill payments » 24dash.com

Chancellor Alistair Darling today announced a £50 billion emergency rescue plan for stricken UK banks.

The scheme will see taxpayers' money used to buy stakes in major banks in an attempt to halt the meltdown in the financial sector.

The bail-out comes after another day of panic on the stock market, with banks suffering devastating share losses amid concerns over their funding.

Royal Bank of Scotland shares plummeted by almost 40%.

Mr Darling said that the measures the Government was taking were in response to "extraordinary times".

"Those are absolutely critical so far as the system is concerned and we want to make sure that we can get the system going again," he told Sky News.

"It is a process that inevitably will take time. It is not an instant change but it is a restructuring, it is stabilising the system, and that is very important."

HBOS, which is in the process of being taken over by Lloyds TSB, said it welcomed today's announcement.

"The Government's announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system.

"HBOS believes that this initiative is very much in the interests of its shareholders and customers."

The Chancellor said the taxpayer would not lose out.

"The taxpayers' interest is being protected," he said.

"I'm very clear that in return for all this, the taxpayer has got to see some upside. In relation to lending to small businesses, in relation to mortgages... that's important too."

Mr Darling said he still did not "rule anything out" but, of today's package, he said: "I believe it will go a long way."

He admitted he had been "irritated" by speculation about the package since Sunday because the Government was working on the package.

"I wanted to announce it when the time was right, when we had got everything sorted out, we had a scheme that worked and the big banks were signed up to it," he said.

"And we actually finished these discussions only a few hours ago."

Mr Darling said it was "absolutely not" true that the chairman and chief executive of Royal Bank of Scotland would lose their jobs as part of a deal with the Government.

"It's not the Government's business to deal with banks' appointments," he said. "It is entirely a matter for banks."

Eight UK banks and building societies - including RBS, Barclays, HBOS, Lloyds TSB and Nationwide - have signed up to an initial £25 billion scheme.

And the Government said it stood ready to make at least another £25 billion available for other eligible institutions.

The Bank of England is also extending the existing £50 billion Special Liquidity Scheme to £200 billion, while a further £250 billion being pumped in under a debt guarantee scheme.

It is hoped that the extraordinary measures will provide the capital boost needed and help restore confidence to get banks lending to each other again.

But the Government is demanding that in return for the public-backed cash injection, banks must cap executive pay and shareholder dividends and commit to supporting lending to homebuyers and small businesses.

Details of the stake-buying scheme reveal that taxpayers will buy preference shares in the banks, which means that they will be first in line for the pay-out of dividends.

The Government sought to give assurances that taxpayer interests would be protected.

A statement said: "If the Government is to provide the capital, the issue will carry terms and conditions that appropriately reflect the financial commitment being made by the taxpayer.

"In reaching agreement on capital investment, the Government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers."

Reports also suggested that RBS had agreed a boardroom clear-out in return for the state-assisted boost.

It is understood that the bank's chief executive Sir Fred Goodwin and chairman Sir Tom McKillop had agreed to stand down.

Mr Darling said he would be announcing measures in the Commons later to help British depositors in Icesave - the internet arm of the Icelandic Landsbanki bank which was nationalised yesterday by the Icelandic government.

He told GMTV: "I am very aware of the fact that Iceland has, sadly, chosen to default on its obligations here. We are pursuing Iceland and we will pursue it vigorously to make sure that we get the money due to us back.

"But in the meantime I am going to be able to help those savers who would otherwise have to look to Iceland to get their money back. I am prepared to stand behind them and to stand behind the depositors.

"It demonstrates my commitment to help people who have put money into banks in these exceptional circumstances."

Shadow chancellor George Osborne said the Tories would be "as constructive as possible".

"We want this to work, we hope it will work," he told BBC Radio 4's Today programme.

"This is the final chapter of the age of irresponsibility and it's absolutely extraordinary that a government has been driven by events to today's announcement."

Mr Osborne said it was the "right thing" to provide for the recapitalisation of the banks and some guarantees of the inter-bank market.

But he added: "I want to make sure - and I hope that in detailed negotiations with the individual banks the Chancellor makes sure - that this money is used to allow credit to flow through the economy again, to get that loan extended to the small businesses who need it, to get the family mortgage extended, it is not used to pay bonuses for bankers.

"I think people would be shocked if bonuses were being paid to the banks that take this money."

Mr Darling said the overall package was "a major step forward", demonstrating the Government's commitment to do "whatever it takes" to maintain the stability of the system.

"The big problem is that if we don't do this, we run the risk that banks will stop lending to each other and if they don't lend to each other, then they won't lend to us," he told GMTV.

"That is happening here, it is happening in America, it is happening in Europe, it is happening all over the world. I want to give a jolt to the system to move it on."

Newly-appointed Scottish Secretary Jim Murphy was one of the first senior politicians to arrive at Downing Street this morning.

Environment Secretary Hilary Benn was the next member of the Cabinet to arrive, followed shortly after by a stony-faced Peter Mandelson, the newly-appointed Business Secretary.

Hazel Blears, the Communities and Local Government Secretary, smiled as she made her way into the building.

Chief Secretary to the Treasury Yvette Cooper and her husband Schools Secretary Ed Balls arrived at Downing Street shortly before 8am to join other Cabinet members attending a meeting of the National Economic Council.

RBS denied the reports about its chief executive and chairman.

Sir Fred said he welcomed the bail-out package.

He said: "The Government has increased support in a number of important areas. The proposals will enable us to strengthen our position and to support our customers across the economy."

The banks that have confirmed they will take part in the scheme are: Abbey, Barclays, HBOS, HSBC Bank, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, and Standard Chartered.

Shares in most of the major UK banks rose sharply today on news of the Government bail-out.

HBOS - soon to be taken over by Lloyds TSB - was 28% up in early trade, with RBS ahead by 13% and Lloyds up 5%.

The wider FTSE 100 Index sank 150 points into the red after heavy overnight falls in the US and Asia, but the decline was far less than the 270-point plunge feared in the market.

The CBI today welcomed the government’s measures to support the UK financial system, and reiterated its call for a 0.5-percentage-point cut in interest rates tomorrow to boost consumer confidence.

John Cridland, CBI Deputy Director-General, said: “We welcome today’s essential measures which strengthen the British banking system, and will help provide financial stability for the country.

“British business is facing a freezing of bank finance. Many companies need this action to keep investment and working capital flowing.

“This step to build confidence in the City needs to be followed tomorrow by a half-point cut in interest rates to boost consumer confidence.”