By DPA,
London : British Prime Minister Gordon Brown has hailed as “bold and far-reaching” a major rescue package for leading banks of 50 billion pounds ($87 billion) announced Wednesday.
“New and innovative” ways were required to tackle the fall-out of the global credit crisis on banks and the economy in general, Brown said in a statement.
Chancellor of the Exchequer Alistair Darling, who detailed the plan in a written statement to the London stock market Wednesday, said the package was a “major step forward” in the government’s commitment to maintain stability in the banking system.
The package, finalized only in the early hours of Wednesday, foresees an injection of capital of 50 billion pounds of taxpayers’ money over three years.
It will initially make the extra capital available to eight of Britain’s largest banks and building societies. In return for the funding, the government will receive preferential shares in those institutions.
The money will be used to prop up the banking system that has seen share prices plunging in recent weeks as banks have struggled to access funding.
As part of the package, a further 200 billion pounds will be made available by the Bank of England for short-term borrowing to provide liquidity to banks and building societies.
There will also be a special company set up to provide up to 250 billion pounds in loan guarantees to banks and building societies lending money to each other.
According to the Financial Times Wednesday, the recapitalization programme will more than double planned public borrowing this year, pushing public sector net borrowing close to 100 billion pounds or 6 percent of national income.
“This is beginning a process of un-bunging a big problem where banks won’t lend to each other for long periods,” Darling said.
The government hopes that taxpayers may even end up making a profit from the shares in the longer term.
While banking stocks rose in London on the news, the Financial Times Index was sharply down Wednesday.
It is hoped that the scheme, using taxpayers’ money in what amounts to the part-nationalization of leading banks, will restore confidence, revive lending and stimulate the flagging economy.
The move, sealed at a top-level meeting called by Prime Minister Gordon Brown at Downing Street late Tuesday, came after two days of turbulent sessions on the stock exchange, which saw leading bank shares fall sharply.