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New set of measures to help banks | New set of measures to help banks |
(10 minutes later) | |
The government has announced a second package of measures to support the banking system. | The government has announced a second package of measures to support the banking system. |
The long list of measures includes a scheme to offer insurance against banks losing more money from the toxic debt that started the credit crunch. | The long list of measures includes a scheme to offer insurance against banks losing more money from the toxic debt that started the credit crunch. |
The banks will have to pay for the insurance, but the government says it does not expect to be paid in shares. | The banks will have to pay for the insurance, but the government says it does not expect to be paid in shares. |
The Treasury will also be buying up to £50bn of safer assets from banks, which will include mortgage debt. | The Treasury will also be buying up to £50bn of safer assets from banks, which will include mortgage debt. |
Risky assets | |
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. | |
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. |