In These New Times

Here is a nice little summary of the government’s bailout. I have made a small correction. Does anyone think that this looks like a partial nationalisation of the banks? Let us know your views!

Telegraph

6th October, 2008

The Treasury has today unveiled a multi-billion pound package in an effort to restore confidence in the banking system. Here are the key points.

Extra liquidity for banks:

Under the plan, at least £200bn will be made available to banks under what is known as the Special Liquidity Scheme that was set up by the Bank of England earlier this year. The Bank of England will, according to the Treasury, will “extend and widen” its facilites for banks to stablise the financial system.

Additional £50bn for banks:

In addition, the Treasury is making available another £50bn to a number of banks should they need it to repair their balance sheet. The banks involved in the plan are: Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide, Royal Bank of Scotland, Standard Chartered. Should the bank take up the new money, the Government will take stakes in the bank through so-called Preference shares.[Or, rather, “in appropriate form” The relevant passage is this one “In addition the Government is establishing a facility, which will make available Tier 1 capital in appropriate form (expected to be preference shares or PIBS)”. As you can see the government will not necessarily be taking preference shares, although they will be “expected to”.(but not by me) In a part nationalisation you would expect the government to say; “we will be taking such-and-such a shareholding in the companies and we will have such-and-such representation on the board”. They have said no such thing.-Ed. inthesenewtimes]

Government guarantee of short-term funding:

The Government has also committed to help banks refinance short and medium term debt. The Government is prepared to guarantee this to the tune of £250bn.