Submitted on Wednesday 08th October 2008
£50bn banking support
The government has today offered £50bn of taxpayer money as part of a £500bn support package to 8 major UK banks and building societies - Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered. .
In return, they insist that banks must review dividends paid to shareholders, restrict the payment of bonuses to employees and concentrate on lending to small businesses and would-be homeowners.
The £50bn will be used to purchase preference shares in the banks, which take precedence over ordinary shares in the event of liquidation but offer no voting rights.
Barclays and RBS have already said they will participate in the scheme, but HSBC has insisted that it does not plan to do so.
£500bn rescue scheme
- Up to £50bn of taxpayer money to be offered to purchase preference shares
- Special Liquity Scheme budget increased to £200bn
- £250bn offered to guarantee debt issued by banks
It is designed to get banks lending to eachother once again and to restore some confidence into the market. It comes in a week when banks such as RBS, Lloyds TSB and Barclays have seen billions of pounds wiped from their share values as confidence in the banking sector faltered globally.
How will this affect the mortgage and finance market?
Increased confidence in interbank lending may help LIBOR rates fall. This would help reduce the cost of both residential and commercial lending rates.
