Government announces second bailout package for banks

The Government has announced a second rescue package worth £200 billion for the banking system which will insure British banks against losses from bad loans.

The plan is designed to prevent the financial crisis from getting worse and to improve confidence and the banks’ ability to lend.

Under the terms of an insurance scheme, banks will agree with the Government the amount they expect to lose from particular debt.

Meanwhile, the £250 billion credit guarantee scheme underwriting the risk of banks’ lending to each other has been extended to the end of this year. The scheme was originally due to expire in April.

The measures have arisen following lengthy meetings over the weekend between banks, the Bank of England, the Treasury and the Financial Services Authority.

A further measure will see the Treasury swap the £5 billion of preference shares it holds in RBS, meaning the Government’s stake will increase to almost 70% from the current 57.9%.

Furthermore, it is also swapping the preference shares it owns in Lloyds TSB, which today completes its acquisition of HBOS.

However, it is believed that Lloyds will object to the move since it means the Government’s stake will increase to more than 50% from the current 43%.

It is hoped that the announcement will help banking shares recover after they took a battering on Friday.

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