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The Guardian's economics editor, Larry Elliott, assesses the government's latest banking bail-out
We I'm in two minds regarding this, I know that we really don't have any choice but I think the banks the should not only loan to business but also loan to the their customers.
Why should we keep or money in banks, their have wasted / loss billions of pounds in bad deals and investments - so why are we having to help out these private companies.
I don't fully understand but if we loss the banks to who economy would crash, but why use tax payers money. The issue I feel the most strongly about is what is the bank doing with this money, and who is it helping. Is this securing peoples own investments, shares and pensions.
Now I privately rent my flat and I use public transport, so these actions taken by the Government - reducing vat and lowering interest rates has not benefited me at all. Transport cost have in increased by up to 10%, rent has not reduced like peoples mortgages. In the present economic situation you are not really able to ask for a pay rise, because if you have a job you are luck.
When the banks were offering 5 times and 100% mortgages, I was unsure because of the finical commitment. But what I feel is the people that over mortgages them self's either knowingly or accidental have been bald out by the government. But people like me who was not sure I could commit to the monthly re payments is know stuck, because the deposits are so high I can't afford to pay my rent, bills and save for a deposit.
I know that this money to the banks is intended to go towards business, but maybe reduce tax on people earning below £25,000 per years, because this will give people money in their pockets to spend in the high street.
Bank shares in free fall despite bail-out
Bank shares plummeted today amid concerns that the latest government package to stabilise banks and encourage lending would not solve the deepening economic crisis.
Royal Bank of Scotland was the biggest faller in the FTSE 100 share index, its price collapsing by more than 66%, to 11.6p, after it warned ofthe largest loss in British corporate history of up to £28bn and its chief executive, Stephen Hester, admitted that full-scale nationalisation of the bank had been considered.
The taxpayer already owns 58% of RBS but this will soon rise to 68% when £5bn of preference shares owned by the government are converted into ordinary shares.
The first day of dealing in shares of the newly created Lloyds Banking Group resulted in a 34% drop to 65p. The bank, which now has more branches than any of its rivals, issued a trading statement insisting that Lloyds TSB had been trading "satisfactorily", while HBOS, which it rescued in a deal brokered by Gordon Brown, had not suffered any "significant change" in its trading position.
Unlike RBS, Lloyds TSB is not asking the government to convert the preference shares it owns in the combined bank into ordinary shares, which means the taxpayers' stake is staying at 44%.
Eric Daniels, the chief executive of Lloyds, said the bank was "continuing its ongoing constructive dialogue" with the government about the wide range of measures announced today. Among them is a plan to sell insurance to banks to help them cap the losses on loans that have turned sour in the credit crunch.
HSBC, the only bank listed on the stockmarket not to have raised any fresh funds, insisted it would not need to use the government insurance scheme.
"HSBC has not sought capital support from the UK government and cannot envisage circumstances where such action would be necessary," the bank said. "HSBC has long been one of the world's most strongly capitalised banks and is committed to maintaining this position."
Shares in HSBC closed down 6.5% at 501p amid persistent talk that it would need to raise funds, which has been widely predicted since analysts at Morgan Stanley said last week that the bank may need as a much as £20bn of extra funds.
Barclays shares – which lost a quarter of their value in a frenzied hour of trading on Friday – recovered many of their losses early on but closed down another 10%, at 88p.
To participate in the government's insurance scheme, Barclays would need to sell preference shares to the government or find cash to cover the cost of the guarantee. John Varley, the bank's chief executive, is thought to be determined not to sell such shares to the government, even though they would not appear on the bank's shareholder register.
The bank has yet to decide whether to participate in the insurance scheme. Varley said he welcomed the range of announcements today. "The government has worked hard to construct practical and extensive measures to help the UK economy," he said. "The programme is made up of a number of important initiatives in the areas of capital ratios, funding and asset protection."
He added that Barclays would work with the tripartite authorities – the Treasury, the Bank of England and the Financial Services Authority – over the coming days "to understand the detail of the programme and to determine how it can be used to best effect on behalf of customers, shareholders and the wider economy".
RBS expects to use the scheme and Hester admitted today that he expected the bank to be "guinea pig". He admitted total nationalisation of RBS had been discussed with the government. "It was discussed as something we all wish to avoid," he said.
Bruce Packard, banks analyst at the stockbroker Evolution, said: "These share price movements tell you that the government has gone around and said the bank bail-out in October hasn't worked and if they hadn't done that I don't think we'd be in this position.
"I'm a banks analyst and I don't want to criticise the government. They did the right thing in the second half of October but I'm not sure they're doing the right thing now." He has a price target for RBS shares of 18p
sourced from The Guardian
UK banking plan faces criticism
The government's latest plan to counter the economic downturn by encouraging lending has been criticised, and sent banks' shares tumbling.
Opposition MPs argued that the government's measures were inadequate and too many details remained unknown.
Meanwhile Prime Minister Gordon Brown said the move, which centres on state insurance for banks, was essential to help protect jobs.
Business leaders have raised concerns over how much the plan will cost.
The latest government package is the second major set of measures to encourage banks to lend to individuals and businesses, as credit remains scarce or expensive to obtain.
The news sent banking shares down sharply, with Royal Bank of Scotland closing down 67%.
The bank's warning that it could see record losses for 2008 compounded worries about the state of the finance sector.
'Turbulent times'
But the prime minister said that without the new schemes, jobs may have been "needlessly" lost at healthy firms struggling to gain access to necessary funding.
"Good businesses must have access to credit," said the prime minister.
"It is because of this that we are taking the action to expand lending."
Shadow chancellor George Osborne said the details of Monday's package remained a "mystery".
Mr Osborne added that the prime minister "hasn't saved this economy and he hasn't even saved the British banks yet".
Liberal Democrat treasury spokesman Vince Cable said the government's latest plans were inadequate, urging instead for the whole banking sector to be nationalised.
"The government must bite the bullet on the public ownership and control of the banks to ensure that lending is maintained to sound companies who can keep the economy ticking over in these turbulent times," he said.
The long list of policies includes a scheme to offer insurance against banks losing more money from the bad debts that started the credit crunch.
Meanwhile, the Bank of England is to be able to buy assets direct from firms.
The government would not reveal how much the latest plan would cost the taxpayer.
Four key points
Here are the key points of the government's latest announcement:
• Banks will be able to take up government insurance against their expected bad debts
• The Bank of England will be able to buy up to £50bn worth of assets in companies in all sectors of the economy
• Northern Rock has been given extra time to repay its loans from the government
• The government is increasing its stake in RBS to nearly 70% from 58%. RBS also said it was set to report a huge loss for 2008, with asset write-downs of up to £20bn.
Insurance plans
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.
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".
Under the Bank of England's new role, it will be able to buy up to £50bn of high quality assets, such as bonds and loans, directly from companies
Northern Rock extension
There have also been changes to the terms of previous bank rescues.
The government has given Northern Rock longer to repay its loans from the government.
There was concern that the timetable for repaying the loans was forcing Northern Rock to reduce its mortgage lending too quickly.
Separately, RBS said it had agreed with the Treasury to swap the £5bn of preference shares the government holds for new ordinary shares, increasing the government's stake from 58% to nearly 70%.
The swap will reduce RBS's annual payments to the government as preference shares have a higher guaranteed rate of return than ordinary shares.
sourced from The BBC
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