Britain to build safety net for ailing banks

January 18th, 2009 - 8:51 pm ICT by IANS  

London, Jan 18 (Xinhua) The British government is to build a 200 billion-pound ($290 billion) “safety net” for ailing banks in the country.Whitehall officials confirmed Saturday night that a plan to underwrite the toxic loans taken on by British banks in recent years was under discussion as Prime Minister Gordon Brown proposed another rescue plan to kick-start the economy.

The “safety net” proposal, being hammered out by the prime minister, Chancellor of Exchequor Alistair Darling, and bank chiefs, would require institutions to identify their most troublesome loans and pay into a state-sponsored insurance scheme, according to Independent newspaper Sunday.

Though the banks would still own the liabilities, taxpayers would ultimately have to pick up the tab for losses greater than an agreed amount.

The new rescue plan comes amid growing concern that lenders are about to unveil losses for 2008 that will send shockwaves through the market and hold back recovery still further.

The Royal Bank of Scotland (RBS) is rumoured to be preparing to reveal about 20 billion pounds ($29 billion) of losses, which would be the biggest corporate loss ever in Britain.

In a statement to reporters in Downing Street, Brown said: “It is the exposure of British banks to international losses that is the biggest problem that we face.”

While some key figures within the government distanced themselves from claims that ministers were planning to establish a “toxic bank”, Brown said the extra protection from huge customer debts is designed to offer banks more security and encourage them to begin lending more to business and individual clients.

The prime minister said any recovery from the worst economic turmoil in 70 years would depend on banks first writing off toxic loans to try to restore confidence in the financial system.

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