British banks are proposing that the government help bail them out of losses from the credit crunch so they can resume lending, according to four people with knowledge of the discussions, but Prime Minister Gordon Brown suggested Friday that he would not go along.
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British Banks Reportedly Seek Bailout
The Associated Press
27 September 2008
LONDON: British banks are proposing that the government help bail them out of losses from the credit crunch so they can resume lending, according to four people with knowledge of the discussions, but Prime Minister Gordon Brown suggested Friday that he would not go along.
Brown, who was in Washington for a meeting with President George W. Bush, told the British Broadcasting Corp. television that the best way of dealing with the British aspect of the global financial crisis was to increase liquidity.
“The American plan is designed for a large number of banks and institutions across America,” Brown told the BBC. “We have a smaller banking system.”
The four people with knowledge of the discussions declined to be identified because the negotiations are confidential. They said industry executives had held talks during the week about different options, including the establishment of a bank, run by the government, that would take over low-value assets including mortgage-backed securities that declined in value with the collapse of the U.S. subprime home-loan market.
“The economic downturn is gathering momentum,” George Magnus, senior economic adviser to UBS in London, told Bloomberg Television. “The mortgage industry is pretty much dead. The government does have to do something.”
Brown backed the takeover by Lloyds TSB Group of Britain’s largest mortgage lender, HBOS, to keep it from succumbing to the global credit crisis.
Brown said Britain’s central bank, the Bank of England, had made more than £100 billion, or $180 billion, available to lenders and that the government was prepared to do more to tackle instability in its financial markets.
Brown said the Bush administration’s proposed $700 billion banking bailout was something “quite unique.”
The chancellor of the Exchequer, Alistair Darling, and the governor of the Bank of England, Mervyn King, have indicated their opposition to using taxpayer money to support bank lending.
Government officials from the Treasury, the central bank and the Financial Services Authority are talking daily with commercial banks about how to preserve the stability of the financial system. None of those authorities would give details of the discussions.
The three authorities are also considering options including an extension to the “special liquidity scheme” set up April 23 to spur interbank lending, according to the people involved in the matter. The emergency lending program lets banks swap mortgage securities shunned by bond investors for government bonds. The plan was to end next month and will now run until Jan. 30.
Bradford & Bingley, the biggest British lender to landlords, fell to a record low in London trading Friday on concern that it would not be able to raise money in capital markets. Royal Bank of Scotland Group, Britain’s biggest bank after HSBC, has been scaling back lending to shore up capital.
An FSA spokeswoman, Kirsty Clay, declined to confirm or deny reports about the plan. She also refused to comment on Bradford & Bingley, citing the regulator’s policy of not talking about individual companies.
“There is a severe crisis” in the money markets, said Neil MacKinnon, chief economist at ECU Group in London and a former British Treasury official. “The U.K. should take a leaf out of the U.S. book and look at a government-backed rescue.”
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