UK Chancellor mulls second bail out for British banks

05 January 2009

UK Chancellor Alistair Darling is reportedly mulling a second bailout during the coming week for British banks with his October plan of injecting £37 billion to recapitalise Britain's banks to make them start lending again, having failed to ease the credit crunch.

Treasury sources told the media yesterday that the government led by Prime Minister Gordon Brown is mulling a second multi-billion pound cash injection into the British banking system to get credit flowing to home owners and businesses.

Apart from directly injecting cash into the banks, the government is also mulling options like asking banks to raise money from private sources while the government will give guarantees at a lower rate to banks or even buying their distressed assets on the assumption that once the banks are free of these unhealthy assets, they would start lending again.

In October last year chancellor Darling had unveiled a radical £50-billion emergency rescue plan for major British banks in a bid to stem the financial market meltdown and revive investor confidence. (See: UK launches 50 billion pound rescue plan for banks)

The radical plan, hailed globally as superior to the US Fed's and emulated by several European countries, envisaged part nationalisation of eight major British banks where the treasury would invest up to £50 billion in exchange for preference shares in eight of the country's largest banks  - Abbey National PLC, Barclay's PLC, HSBC, HBOS, Lloyds TSB Bank, Royal Bank of Scotland and Standard and Chartered Bank as also the Nationwide Building Society.

The Bank of England also announced that it will make available £200-billion in short-term loans and issue £250-billion to guarantee loans between banks.