Britain is poised to guarantee "toxic debt" worth up to £200 billion (€221.7 billion) in a second bank bailout designed to boost lending and fend off a prolonged recession triggered by the worst economic turmoil in 70 years, it was reported today.
British government officials and bank chiefs have spent the weekend in talks, a finance ministry spokesman confirmed, as they seek a solution to a credit freeze that has crippled industry, small businesses and homeowners already struggling to cope with the downturn.
Prime Minister Gordon Brown said details of the package would be announced "in the next day or two". Speaking to reporters in Egypt, where he was attending talks on Gaza, he said: "We know the essential problem is the resumption of lending."
The package is designed to "get lending moving in the economy" to help families and businesses, he added. Key parts of the bailout may include a huge state insurance scheme to guarantee billions of pounds of banks' bad assets and the government taking bigger stakes in several banks, the BBC reported.
Banks would have to identify their riskiest loans and pay a fee to a state-backed insurer for protection against losses above a certain level, the state broadcaster said.
Downing Street and the finance ministry have declined to comment on reports giving details of the planned bailout.
Britain has been forced into a second rescue after state injection of 37 billion pounds to recapitalise three of the biggest banks last October failed to get credit moving again.
Confidence in banks has plummeted due to fears over the exact scale of their exposure to bad loans.
On Friday, Barclays, one of Britain's biggest banks, saw its shares dive by a quarter in the final hours of trading. Royal Bank of Scotland fell by 13 per cent and Lloyds Banking Group dropped nearly five per cent.
Ministers have drawn up plans to nationalise fully the Royal Bank of Scotland, the Sunday Telegraph said.
The government could also try to refinance the preference shares that were used to take stakes in Lloyds and RSB.
In an interview published yesterday, Mr Brown said banks must come clean over their bad debt to kick-start any recovery.
"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," he told the Financial Times newspaper.
Brown is eager to get banks to increase lending to businesses and households after a series of bleak figures on trade, unemployment and the housing market.
The former finance minister has seen his poll ratings fall in recent weeks, with some surveys suggesting voters are growing increasingly disillusioned with his handling of the economy.
A YouGov survey in the Sunday Times put the opposition Conservatives up four percentage points from last month at 45 per cent, with Labour down three on 32 percent. An election is due by May next year.
Conservative leader David Cameron and his finance spokesman George Osborne regained their poll lead over Brown and finance minister Alistair Darling when people were asked which pair would handle the economy more competently.
Nine out of 10 of those polled said the British economy was in a bad state after a slew of bleak figures on unemployment, trade and house prices.
Reuters