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| New plan to boost banks' lending | New plan to boost banks' lending |
| (10 minutes later) | |
| The government has announced a second package of measures to encourage banks to lend to individuals and businesses. | 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 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. |
| Prime Minister Gordon Brown condemned the banks that had made losses from "irresponsible" lending. | 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. | The Bank of England has been given a new role - it will be able to buy up to £50bn of assets directly from firms. |
| Risky assets | Risky assets |
| Under the insurance scheme, banks will agree with the government the amount they expect to lose from particular debt. | 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 Treasury will then sell insurance against about 90% of the institutions' additional losses from the debt. |
| 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 scheme is temporary, based on loans rather than grants, is backed by assets and can be capped if necessary," said Mr Brown. | "The scheme is temporary, based on loans rather than grants, is backed by assets and can be capped if necessary," said Mr Brown. |
| 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 | 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 government describes the assets involved as being those "most affected by the current economic conditions". | 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. | 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 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. | 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". | 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". |
| New role | New role |
| The chancellor says banks will have to agree to lend more | 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. | 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. | 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. | 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 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. | 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. | 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. |
| Previous rescues | Previous rescues |
| There have also been changes to the terms of previous bank rescues. | 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. | 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 comments | HAVE YOUR SAY I thought the tax payer had already coughed up once. Is it Ground Hog Day?Adrian Mugridge, Chester Send us your comments |
| There 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. | There 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. | 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. | 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. | 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. | 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. | "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. |
| Hefty losses | Hefty losses |
| The agreement came as RBS said it expected to announce 2008 losses of between £7bn and £8bn. | 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. | 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. | 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. | 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. | 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". | 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". |