Government may guarantee banks’ lending

| December 11, 2008
Government may guarantee banks' lending

The Government is reported to be considering a range of new measures that could free up lending.

When the banks were bailed out with £50 billion of taxpayer cash in October, ministers made it clear that they expected the UK’s High Street banks to restore lending to businesses and individuals.

Business Secretary, Peter Mandelson, has since threatened banks with legal action if they fail to keep their end of the bargain.

However, lenders have been fighting back, with the director general of the Council of Mortgage Lenders describing the Government’s policy objectives as “conflicting and incoherent” because lenders need to recapitalise, and therefore attract retail deposits, but are at the same time facing Government demands that cuts in the base rate are passed on in full to borrowers.

Meanwhile, a report by the National Institute of Economic and Social Research published earlier this week warned that the UK economy could enter a deep recession in the final quarter of 2008 and suggested that there is a very urgent need for the Government to address the availability of credit.

According to reports in the press, ministers are now considering providing guarantees for new lending, such as loans to small businesses, mortgages and car finance.

Details of a scheme that would charge banks a fee in return for the guarantee are expected shortly.

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