Banks call on minsters to back bail-out scheme
BANKS are pressing the Government to guarantee £890billion of customer deposits and for help in bailing out money markets worth trillions.
High-level talks between the banks and the Government are exploring a range of options with an announcement expected in the next two weeks.
Industry insiders said a bail-out could involve a degree of self-help, with banks creating their own cash pool on which they could draw.
Other options include a UK version of the US bail-out, where the Government buys toxic assets, or co-ordinated European Union action.
Insiders said guaranteeing customer deposits was easy compared with thawing the wholesale markets, where banks lend to each other and total liabilities can amount to trillions.
The wholesale markets underpin a huge range of bank lending, from mortgages to corporate loans.
Insiders believe plans to guarantee deposits up to £50,000 are not enough and the Government will underwrite all consumer savings.
If small businesses are included, then the figure guaranteed could rise to £1.1trillion.
Plans for a bail-out pool would be a permanent extension of the Bank of England’s money-market cash injections and the £100billion “special liquidity scheme”, where banks can swap mortgage debts for government bonds.
“The problem with the current measures is they are too ad-hoc and too small,” said one insider.
The banks also want a lending facility that takes a broader range of collateral than the Bank of England is prepared to accept.
While the Government has said it will rule out nothing, neither the banks nor the Treasury want to follow the Irish example and guarantee wholesale liabilities.
“It sends out the message there is something fundamentally wrong with the UK banking system and there isn’t,” said one source.
“The reason why the Irish did it was because two of their banks were going to fail this week.”
The European Union said yesterday it would be exploring proposals to impose tighter regulations on the risks banks can take and on capital reserves.
JP Morgan analysts warned the Lloyds-HBOS combination and Barclays could write down billions more in the future.
Royal Bank of Scotland’s Irish offshoot Ulster Bank is to benefit from the Irish guarantees, having originally been excluded.
