New plan to boost banks' lending

Source - BBC News 24, Jan 19th

 

 

The government has announced a second package of measures to encourage banks to lend to individuals and businesses.

 

The long list of measures includes a scheme to offer insurance against banks losing more money from the bad debts that started the credit crunch.

 

Prime Minister Gordon Brown condemned the banks that had made losses from "irresponsible" lending.

 

The Bank of England has been given a new role - it will be able to buy up to £50bn of assets directly from firms.

 

Four key points

 

On another day of major development for the banking sector, here are the key points of the government's latest announcement:

 

• Banks will be able to take up government insurance against their expected bad debts

 

• The Bank of England will be able to buy stakes in companies in all sectors of the economy

 

• Northern Rock has been given extra time to repay its loans from the government

 

• The government is increasing its stake in Royal Bank of Scotland (RBS) to nearly 70% from 58%. RBS also said it was set to report a huge loss for 2008, with asset write-downs of up to £20bn.

 

Insurance plans

 

Under the insurance scheme, banks will agree with the government the amount they expect to lose from particular debt.

 

The Treasury will then sell insurance against about 90% of the institutions' additional losses from the debt.

 

What we've said is 'you've got to lend about £6bn more to businesses and to people' and the RBS Group have agreed to that

 

Chancellor Alistair Darling

 

 

See banking sector share prices

The details of the latest plan

 

The banks will have to pay for the insurance, but the government says it does not expect to be paid in shares.

 

"The scheme is temporary, based on loans rather than grants, is backed by assets and can be capped if necessary," said Mr Brown.

 

The government describes the assets involved as being those "most affected by the current economic conditions".

 

Most of the debt involved is very difficult to value because the market in it has collapsed.

 

The questionable value of the assets has meant that banks do not know how much money they are in a position to lend.

 

The government hopes that by insuring them against additional losses, it will encourage the banks to resume normal lending to businesses and individuals.

 

Chancellor Alistair Darling told the BBC that banks taking out the insurance would have to make "very specific legally binding agreements to lend more money".

 

Bank's new role

 

 

 

The chancellor says banks will have to agree to lend more

Under the Bank of England's new role, it will be able to buy up to £50bn of high quality assets directly from companies.

 

In the past, it has only bought such assets from banks or financial institutions.

 

A new subsidiary company will be set up to buy the assets, but the Bank's executive will decide what sort of assets it will buy and from which companies.

 

But the list of assets includes corporate bonds, so some companies will now be able to borrow money directly from the Bank of England.

 

This new framework may also be used by the Bank of England's Monetary Policy Committee (MPC), which sets interest rates, to buy assets to help it meet the inflation target.

 

This is a practice known as quantitative easing.

 

Previously, the MPC's only tool was setting interest rates, but there is concern that as rates get closer to zero, they will become less effective and other measures will be needed.

 

Liberal Democrat treasury spokesman Vince Cable said the government's latest plans did not go far enough, and that instead, it should now nationalise the whole banking sector.

 

"At the moment, large numbers of excellent British companies are unable to raise credit," he said.

 

"The government must bite the bullet on the public ownership and control of the banks to ensure that lending is maintained to sound companies who can keep the economy ticking over in these turbulent times."

 

Northern Rock extension

 

There have also been changes to the terms of previous bank rescues.

 

Northern Rock has said that it is to be given longer to repay its loans from the government.

 

 

HAVE YOUR SAY I thought the tax payer had already coughed up once. Is it Ground Hog Day?

Adrian Mugridge, Chester

Send us your commentsThere was concern that the timetable for repaying the loans was forcing Northern Rock to reduce its mortgage lending too quickly, which was not in line with the expansion the government wanted.

 

The chancellor said that Northern Rock could not cut back its lending because there had been substantial falls in lending by foreign banks in Britain.

 

In another announcement, RBS said it had agreed with the Treasury to swap the £5bn of preference shares the government holds for new ordinary shares.

 

This will mean the government's stake in the bank will increase from 58% to nearly 70%, but it will reduce the amount that the bank has to pay to the government every year.

 

The chancellor said that as a result RBS would have to lend more money.

 

"What we've said in return is 'you've got to lend about £6bn more to businesses and to people' and the RBS Group have agreed to that," Mr Darling said.

 

 

 

The agreement came as RBS said it expected to announce 2008 losses of between £7bn and £8bn.

 

However, RBS also said it may have to write down the value of past acquisitions, including the share of Dutch bank ABN Amro it bought in 2007, which could lead to a hit of up to £20bn.

 

Another bank helped by the earlier recapitalisation was the combination of Lloyds TSB and HBOS.

 

They announced this morning the completion of their merger to form Lloyds Banking Group.

 

The new group has not indicated that it plans to follow RBS's lead and swap preference shares for ordinary shares.

 

HSBC, which has not taken any government money so far, has stressed that it has still not taken capital support from the government, and could not "envisage circumstances where such action would be necessary".

 

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So, after chucking them £37bn of our money to begin with, which they just kept for themselves and awarded themselves HUGE bonuses just before Christmas, the Fat Cats in the banking system are now getting even more from public funds.... I'm sick of this sh!t... It's about high time that we, the people of this country, started DEMANDING a full, public and 100%transparent accounting of just where the fukk all the money has gone in the Banking sector... For the last 10 years.... What, exactly, are these "toxic debts", and just why did they actually approve these loans in the first place... I really think it's high time we fully Nationalised ALL UK banks for the forseeable future, and put up the banks for far more public scrutiny... After all, it IS the Public's money they are playing with now, which they so far, have shown utter contempt for.... <_<

 

High time to stop bumming the banks, if we ARE going to bail out the fukkers, they have to start playing by OUR rules, because it is OUR money, and frankly, these fukkers dont deserve to earn any more than the minimum wage after the sh!t they've caused.. The greed of the banks in US and UK has ruined our economy, high time THEY started paying for their mistakes, as the employees of Woolies, Adams and Zavvi have....

 

Once we had the supposed "Trickle Down" effect in this country (the rather fanciful Thatcherite notion that wealth would come from the top and benefit those on the bottom, yeah, I know, a TOTAL LOL to the power of infinity that was.... :lol:), but now is seems we have "Trickle Up".... ie, we, the ordinary, working TAXPAYER are now funding the excesses of the rich scum in the City and the banking sector..... Fukk that..... I've got a large roll of piano wire, and there are plenty of lamp-posts in London, so let's start doing "Mussolinis" on these b/astards..... We can start with the w/ankers who brought out that incredibly offensive "Christmas song".... <_<

............ so you would sooner the banks went bust? :lol:

 

like it or not we need the banks to stay open and this incentive is meant to unlock the huge cash reserves they are sitting on but are to frit to loan in this climate. as i see it its the government attempting to do something positive to fend off the recession...

Isn't this move supposed to help companies to stay afloat and prevent a repetition of Woolies, Zavvi, Adams etc. and the even more alarming prospective collapse of the construction industry, if banks aren't prepared to lend necessary capital?

 

Past nationalised industries were unwieldy and inefficient. I'm not sure modern ones would be much better. You just have to look at the survivors like e.g.NHS and Royal Mail. Services can be patchy and what you actually get often depends on your postcode.

 

On principle I am supportive of the government's attempts to steer Britain through this global downturn.

Edited January 19, 200916 yr by Baytree

............ so you would sooner the banks went bust? :lol:

 

like it or not we need the banks to stay open and this incentive is meant to unlock the huge cash reserves they are sitting on but are to frit to loan in this climate. as i see it its the government attempting to do something positive to fend off the recession...

 

You're right, it is. In fact, most people think the US Treasury's decision to let Lehman Brothers fail was a huge mistake (since then they've kept a ton of US banks open with bailout money).

 

But still, Scott makes a good point about nationalizing banks considering they are now essentially government entities. If it's public money, the public should get to decide what is done with it, not the corporate board of directors who hold shares in a company now valued at virtually nothing. There is something sickeningly wrong about this toxic mix of corporate and public. In the US there have been huge fights over which banks get bailout money and which banks don't. Many suspect certain banks are receiving money for political reasons. Madness! Also, banks like Bank of America got bailout money, used it to buy up other banks (Merrill Lynch, for example) and are now begging for more money! There is no transparency over where the public money is going and how it is spent.

Too far.

 

Where has anyone took any responsibility for this? :mellow:

 

Recessions are largely gloom and doom driven anyway, this will just make it worst from the consumer's point of view. Of course we'll never find out, but the thought of these happening to help Labour stay in power, or make it hard for the Tories is just :angry:. OK extreme views maybe...

The Royal Bank has reported losses of £28b for last year, the biggest ever by a UK Company. :o

 

Losses include.....its loan to LyondellBasell, the recently bankrupted US petrochemical group. That cost £1bn

 

The acquisition of ABN Amro was long ago dismissed by outsiders as shambolic. But RBS has finally owned up to it by writing down most of the £10bn it spent for its share of the Dutch group – less than two years since the deal was announced.

 

RBS was part of a group that offered a £2.8 billion loan to Oleg Deripaska. The oligarch, who has links to Lord Mandelson, the Business Secretary, and met George Osborne, the Shadow Chancellor, in Corfu last summer, used the money to buy the Russian metals firm, Norilsk Nickel.

 

Eyebrows were also raised when it was discovered that RBS had lent £2.5 billion to Leonid Blavatnik, a Russian oligarch who wanted to expand his chemicals business empire. The entire debt had to be written off because LyondellBasell, one of Mr Blavatnik’s foreign companies, was near to collapse.

 

 

Two years ago RBS was worth more than £75 billion; now it is worth a paltry £4.5 billion, even after the taxpayer has given it over £20b and counting.

 

I think all the directors of these banks should be prosecuted for gross incompetence, and should be jailed. We will have to repay these loans for generations in higher taxes. At the very least these criminals should have their mansions repossesed, like they (banks) do to Joe Public. :angry:

............ so you would sooner the banks went bust? :lol:

 

...

 

Well, you want me to be Devil's advocate.....? :rolleyes: Part of me couldn't care less if the whole Capitalist system just collapsed tbh.... It would tend to prove everything that the anti-capitalist movement and anarchists say..... Let's face it, it's all based of BS, exploitation, lies and crooked deals anyway.....

 

But, that isn't really what I was arguing.... What I AM arguing is for a damn sight more accountability... And, as Consie has pointed out, this just isn't happening... We are talking about PUBLIC money here, so I tend to believe that the PUBLIC should determine how it's used and where it goes.... If the average small businessman wants a loan out of the BANKS, they have to provide a full accounting of how the money will be used, they have to give projections, accounts, they have to JUSTIFY a reason for the banks giving them credit.... So, er, I think we should demand the same from banks, if they're gonna use OUR money..... Let's see the accounts, let's see where the money's going.... It really isn't too much to ask considering they are asking for the best part of £100bn.... They're probably sh!t-scared to do this because they know damn fine that if people actually knew the truth, we really WOULD be demanding their heads on sticks..... <_< I am personally FURIOUS with my own bank, RBS, for lending out money to dodgy Russian "businessmen"..... I phoned up the customer hotline and demanded some answers as to how they've managed to lose so much money.... All I got was a lot of "errring" and "umming"..... Well, sorry, but I want some fukkin' answers mate.....

 

Broon claimed that the "bail out" was to prevent people from suffering, well, it seems to me that no one has really been saved at all, tens of thousands of Adams, Woolies and Zavvi employees are out of a job, and the buggers who were responsible for this crisis are still there, still getting bonuses.. Brian is spot on, it is about time we started bringing prosecutions.... If that sounds like a "witch hunt", well, too bad, some things are just far too outrageous just to let go, I personally, am sick of these bloody people, not to mention the likes of Broon who just stood back and let the banking industry and the city carry on their excesses for the best part of a decade.... There are some people who need to pay for what they did to this country and the people, it's the banking industry and Govt that needs the mass cull, not elephants..... <_<

Isn't this move supposed to help companies to stay afloat and prevent a repetition of Woolies, Zavvi, Adams etc. and the even more alarming prospective collapse of the construction industry, if banks aren't prepared to lend necessary capital?

 

Past nationalised industries were unwieldy and inefficient. I'm not sure modern ones would be much better. You just have to look at the survivors like e.g.NHS and Royal Mail. Services can be patchy and what you actually get often depends on your postcode.

 

I dont agree tbh... The only way, as far as I can see, to prevent the sort of excesses in the past from happening again really IS to Nationalise the banks and make them provide a full accounting of their actions, we need to go "back to basics" with banking and return to a more old-fashioned banking system as existed in the 40s and 50s, ie, a banking system that wouldn't just give out credit like sweets to people who had no hope (or no intention..) of ever paying it back, this was the whole issue with Sub-Prime mortgages in a nutshell, people who blatantly should not have been given a mortgage in the first fukkin' place, and the continuous bombardment of "easy credit" by credit card companies.... They're not playing with their customers' money anymore (which was bad enough, I mean, sorry, but HOW DARE THEY use my money for this or that when I have not given my approval, I bank with RBS, you actually think I want some fukkin' Russian Mafia type - oh, sorry, I meant to say 'oligarch' didn't I..... - getting my hard earned.....? Fukk that sh"t..... <_< ). The NHS and Royal Mail are the way they are because of managers and admin types whom the Govt have just allowed to come in and basically fukk up the service... It's nothing to do with it being Public per se.... Royal Mail was a good service 10 years ago (Consie mentioned the "toxic mix of Corporate and Public", well, no better example of that exists than this tbh...), NHS was a good service before the Tory "reforms" (of course, Nu Labor has done nothing to reverse this, and has actually made the problem even worse...), which, again, is attempting some sort of "corporatisation" of the service, which I dont believe is acceptable....

 

 

 

a second package? did the first one work? over here i don't see where the bailout money has done anything but keep the banks open. they still aren't lending more or extending credit to businesses.

 

also, the chancellor stated that the banks have to promise to lend more to consumers but didn't say how much more. very shady. i'm sure the banks will find a way to get around most of the stipulations required in the bailout package. recessions suck but this has to run its course.

:lol:

 

Frowns now from the posters here that supported the initial bailout.

What fools among us.

Edited January 21, 200916 yr by ♥Music♥Life!

oh yay, lets poor even more money into a black hole :cheer:

a second package? did the first one work? over here i don't see where the bailout money has done anything but keep the banks open. they still aren't lending more or extending credit to businesses.

 

Not to mention the fact that some bail-out money has been used to pay managers their ridiculous bonuses.... HOW DARE THEY!!!!!!!! They should all be bloody well be working for minimum wage until they sort out the mess THEY created, and be grateful for it..... And, I wouldn't accept their resignations either, they broke it, they fix it, I dont give a sh!t if this sounds like forced or indentured labour, they enjoyed living high off the hog for long enough at our expense, time for them to suffer for a bit..... <_< Then when they've sorted their mess, we talk about prosecutions.....

Not to mention the fact that some bail-out money has been used to pay managers their ridiculous bonuses.... HOW DARE THEY!!!!!!!! They should all be bloody well be working for minimum wage until they sort out the mess THEY created, and be grateful for it..... And, I wouldn't accept their resignations either, they broke it, they fix it, I dont give a sh!t if this sounds like forced or indentured labour, they enjoyed living high off the hog for long enough at our expense, time for them to suffer for a bit..... <_>Then when they've sorted their mess, we talk about prosecutions.....

This is all very well but the moment you make the first bailout, these bonuses follow from it.

 

Bailouts are a moral hazard.

Here are some videos to explain. The important one is the third video but the first two are required watching so you can understand the third.

 

 

Systemic Risk

 

Paulson's Plan

 

Moral Hazard