Brown's new plan adds 50bn pounds to bank bailout
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The British government unveiled a new plan to support the banking system and boost lending. The announcement came shortly after RBS reported a loss of over 20 billion pounds in 2008, a British corporate record.
REUTERS - Britain threw its troubled banks another multibillion-pound lifeline on Monday by allowing them to insure against steep losses and guaranteeing their debt to stop the credit crunch pushing the economy into a deep slump.
The multi-pronged plan aimed at getting banks lending again to credit-starved consumers raises the government's stake in Royal Bank of Scotland, creates a new 50 billion pound ($74.58 billion) Bank of England asset-buying facility and lays the framework for boosting money supply as interest rates near zero.
Britain pumped 37 billion pounds ($55 billion) into the banks in October but credit still remains scarce and figures this week are expected to confirm the economy is now in recession for the first time since 1992.
Countries across the globe are refining plans to boost their economies. In the United States, President-elect Barack Obama is is trying to figure out how the second half of a $700 billion bailout package can be administered so credit flows again as a credit crunch drives businesses to the wall.
UK Prime Minister Gordon Brown is playing for high political stakes. He was applauded for his initial response to the financial crisis, but a poll published on Sunday showed his party falling further behind the opposition Conservatives, with the next general election due by mid-2010.
Under the latest British bail-out, lenders would have to identify their riskiest assets which they could then insure with the government for a fee. They would still be liable for initial losses but could at least put in a ceiling, boosting confidence.
The Treasury said it would also extend the window for its Credit Guarantee Scheme -- which underwrites debt for banks that were recapitalised by the government -- to the end of this year.
It will also create a guarantee scheme for asset-backed securities starting in April that will build on the recommendations of a government-sponsored report late last year.
To counter the closure of the Bank of England's Special Liquidity Scheme, which expires this month and allows financial institutions to swap hard-to-trade assets for more liquid ones, the bank will extend its discount window facility, with its maturity extending to 1 year from 30 days for an additional fee.
The BoE will also set up a programme to buy assets such as corporate bonds and commercial paper implemented through a specially created fund authorised for up to 50 billion pounds by the Treasury starting February 2.
The scheme will also allow the BoE's Monetary Policy Committee to use asset purchases for monetary policy purposes should the rate-setting committee think this was a useful additional tool for meeting the inflation target.
The Treasury said it would also no longer run down the loan book of Northern Rock, the bank it nationalised last year and that the likely impact on the public finances will be temporary.
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