This article is from the source 'bbc' and was first published or seen on . It will not be checked again for changes.

You can find the current article at its original source at http://news.bbc.co.uk/go/rss/-/1/hi/business/7357880.stm

The article has changed 22 times. There is an RSS feed of changes available.

Version 19 Version 20
Darling backs £50bn bank bailout Darling backs £50bn bank bailout
(about 4 hours later)
Chancellor Alistair Darling has backed the Bank of England's £50bn plan to help prevent the credit crisis causing more damage to the UK banking system.Chancellor Alistair Darling has backed the Bank of England's £50bn plan to help prevent the credit crisis causing more damage to the UK banking system.
Under the scheme, banks will be able to swap potentially risky mortgage debts for secure government bonds to help them operate during the credit squeeze.Under the scheme, banks will be able to swap potentially risky mortgage debts for secure government bonds to help them operate during the credit squeeze.
Mr Darling said it would "help resolve" problems in credit markets and make life easier for would-be borrowers.Mr Darling said it would "help resolve" problems in credit markets and make life easier for would-be borrowers.
The UK's financial system remained "fundamentally strong", he argued.The UK's financial system remained "fundamentally strong", he argued.
Announcing details of the scheme earlier on Monday, the Bank's governor, Mervyn King, said the scheme aimed to improve liquidity in the banking system. In a statement to MPs, Mr Darling said the Bank's intervention was necessary because money markets were not "functioning properly" and were beset by a "lack of confidence" despite billions of pounds in liquidity being pumped into the system.
It should also increase confidence in financial markets, he added. This is a banking market bail-out of an ambition we haven't seen in this country since the early 1970's and possibly longer than that Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/04/banks_big_bailout.html">Read Robert's blog in full class="" href="/1/hi/in_pictures/7359261.stm">Bank plan explained class="" href="/1/hi/business/7359358.stm">Lenders react to plan
Under the scheme, banks will be allowed to swap their "high quality" mortgage debts for government securities. The measures, he said, would help alleviate the "increasing cost and declining availability of lending by banks and building societies".
This is a banking market bail-out of an ambition we haven't seen in this country since the early 1970's and possibly longer than that Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/04/banks_big_bailout.html">Read Robert's blog in full Abbey, one of the UK's largest lenders, reacted by instantly cutting the cost of some mortgage deals, albeit by a very small amount.
The swap scheme, which starts on Monday, will be for a period of one year and may be renewed for a total of three years. But one housing expert said the package would only have a "marginal" influence, at best, on current mortgage rates.
"It is pretty small beer," said Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors. "It is not a short-term fix for the housing market."
Swap scheme
Under the scheme, banks will be allowed to swap mortgage debts for government securities.
The swap scheme, starting on Monday, will be for a period of one year and may be renewed for a total of three years.
It will only apply to mortgage debts on banks' books at the end of 2007 and the swaps cannot be used to finance new lending.It will only apply to mortgage debts on banks' books at the end of 2007 and the swaps cannot be used to finance new lending.
The central bank anticipates that initial take-up of the scheme will total £50bn but there is no cap on lending.The central bank anticipates that initial take-up of the scheme will total £50bn but there is no cap on lending.
Protection Mr Darling denied the support was a bailout, stressing that the risk of losses remained with the banks which will be required to pay a fee for the swap facility and provide the Bank of England with assets of greater value than the government bonds they will receive.
The chancellor also called on banks to be honest about the true scale of their current losses, saying "transparency was an essential part of stabilising financial markets".
We are very supportive of this development John Varley, Barclays chief executive
Despite "broadly" welcoming the plan, shadow chancellor George Osborne called for a "personal guarantee" from the chancellor that no taxpayers would lose out as a result.
Vince Cable, the Liberal Democrats' Treasury spokesman, said he had reservations about the idea, saying it "should be linked to changes in the banks' behaviour".
Prime Minister Gordon Brown said the scheme was one of a range of measures to protect British workers from the turbulence in America's financial and housing markets.Prime Minister Gordon Brown said the scheme was one of a range of measures to protect British workers from the turbulence in America's financial and housing markets.
Robert Peston explains the implications of the Bank of England's move Banks welcomed the move and said they were confident it would go some way to free up credit markets.
"We can get markets working again in a way that we can ensure that jobs can be continued, and of course businesses can have the finance they need," Mr Brown said. "We are very supportive of this development," said Barclays chief executive John Varley. "It is both innovative and substantive."
Banks welcomed the central bank's "innovative and unique policy response" and said they were confident the move would go some way to free up credit markets. But John McFall, chairman of the Commons Treasury Select Committee, said it would be "silly" to think Monday's move would serve as a panacea for the current financial distress.
"The banks are participating in this arrangement and expect it to make a significant contribution to alleviating the pressures in the UK money markets," the British Bankers' Association said. "This is a stimulus but there are tough times ahead over the next year or two economically and you can't get away from it," he told the BBC.
Beneficial effectsBeneficial effects
British banks have become increasingly unwilling to make loans, even to each other, as a result of the credit crisis, which was triggered by massive losses for banks involved in the US sub-prime mortgage market.British banks have become increasingly unwilling to make loans, even to each other, as a result of the credit crisis, which was triggered by massive losses for banks involved in the US sub-prime mortgage market.
The banks are now paying a price for what's happened before. They are going through a painful adjustment Mervyn King, Bank of England governor
And many investors, concerned at what happened to sub-prime mortgages in the US, no longer want UK mortgage-based assets.And many investors, concerned at what happened to sub-prime mortgages in the US, no longer want UK mortgage-based assets.
Robert Peston explains the implications of the Bank of England's move
The disappearance of this market has deprived banks of tens of billions of pounds of finance for mortgage lending.The disappearance of this market has deprived banks of tens of billions of pounds of finance for mortgage lending.
Although it will not directly support new lending, the greater liquidity should free up bank balance sheets and enable them to lend more to consumers, home buyers and businesses.Although it will not directly support new lending, the greater liquidity should free up bank balance sheets and enable them to lend more to consumers, home buyers and businesses.
The idea is that banks should become less reluctant to lend to one another, so they should pay less for the money they borrow on money markets, and consequently they should charge less for the money they lend to customers. However, the Council of Mortgage Lenders - which is meeting with Mr Darling tomorrow to discuss ways of helping borrowers - said that the liquidity boost would not automatically reverse the recent trend for higher mortgage costs.
However, the Council of Mortgage Lenders said that the liquidity boost would not automatically reverse the recent trend for higher mortgage costs.
"Further details are... awaited on how much of the additional liquidity might be recycled responsibly into mortgage products or pricing," it said."Further details are... awaited on how much of the additional liquidity might be recycled responsibly into mortgage products or pricing," it said.
Bail-out?Bail-out?
The BBC's business editor Robert Peston said the primary purpose of the scheme was to prevent another Northern Rock. The BBC's business editor Robert Peston said the primary purpose of the scheme was to prevent another Northern Rock, not to try and bring down mortgage rates.
"Or to put it another way, taxpayer support is being provided to minimise the risk of huge future losses for taxpayers from another banking collapse.""Or to put it another way, taxpayer support is being provided to minimise the risk of huge future losses for taxpayers from another banking collapse."
"This is a banking market bail-out of an ambition we haven't seen in this country since the early 1970's and possibly longer than that," he said."This is a banking market bail-out of an ambition we haven't seen in this country since the early 1970's and possibly longer than that," he said.
But Mr King said the plan ensured that the risk of losses remained with the banks and said those banks taking advantage of the scheme were not being "bailed out" by the taxpayer.
"The banks are now paying a price for what's happened before. They are going through a painful adjustment," he said.
Banks will be required to pay a fee for the swap facility and they will have to provide the Bank of England with assets of greater value than the government bonds they will receive.
Warning
Mr King warned banks against using the government funding to carry out the type of mortgage lending seen in the past, such as 100% mortgages.
"The aim of the scheme is to increase the liquidity of the banking system as a whole. It's not part of this scheme to take us back to the excessive lending of a year or more ago," he said.
Chancellor Alistair Darling, who will address the House of Commons later, said on Sunday the plan was needed to stop the UK's financial crisis worsening.
Vince Cable, the Liberal Democrats' Treasury spokesman, said he had reservations about the idea.
"If the government is going to create this enormous overdraft facility for the banks - essentially what it's doing - it should be linked to changes in the banks' behaviour," he said.
"The banks have got to acknowledge their losses."
Shadow chancellor George Osborne said the move should help to unblock the financial system and help mortgage-holders who need to re-mortgage in the next year or so get a better deal.
Until now, the Bank of England has been more conservative in its financial support for banks than the Federal Reserve in the US and the European Central Bank.Until now, the Bank of England has been more conservative in its financial support for banks than the Federal Reserve in the US and the European Central Bank.
In the US, the Federal Reserve took similar action with a $200bn programme to boost liquidity in financial markets last month.In the US, the Federal Reserve took similar action with a $200bn programme to boost liquidity in financial markets last month.
What's your reaction to the Bank of England plan? If you have any information you would like to share with the BBC you can do so using the form below:What's your reaction to the Bank of England plan? If you have any information you would like to share with the BBC you can do so using the form below:
Name:
 Name: