Banks await the benefits of US rescue

BRITISH banks will look to take advantage of the US government’s latest rescue plan, worth up to $2trillion (£1.4trillion).

US Treasury chief Timothy Geithner US Treasury chief Timothy Geithner

It is believed Royal Bank of Scotland, Barclays and HSBC will look to use some of the measures outlined by US Treasury Secretary Timothy Geithner provided they are eligible and the terms imposed are not damaging to their businesses.

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All three have major American operations and all three have been forced to write down billions on toxic assets and unpaid mortgages in the States.

However, the lack of substantial concrete detail and gloomy comments from Geithner dashed Wall Street hopes of a magic bullet. Analysts warned the package might not be big enough to bail out the bombed-out US economy. The Dow Jones Industrial Average tumbled, driven by sharp falls from the banks.

Geithner’s plan revamps proposals put forward by his predecessor Hank Paulson. It outlines a joint public-and-private sector “bad bank” partnership designed to buy up to $1trillion of poisonous assets the banks themselves cannot sell in a move designed to clean up bank balance sheets.

Further credit guarantees worth up to $1trillion are intended to kickstart lending to consumers and businesses.

Geithner said the US Treasury is prepared to inject further billions into US banks, but warned: “I want to be candid: this strategy will cost money, involve risk and take time.”

“The financial system is working against recovery and at the same time, the recession is putting greater pressure on the banks,” he said.

“Our challenge is much greater today because the American people have lost faith in the leaders of our financial institutions and are sceptical that their government has to use taxpayers’ money in ways that will benefit them. That has to change.”

Geithner’s initiatives will be closely monitored by British politicians grappling with similar problems. The government has so far rejected a “bad bank”, preferring an insurance scheme to underwrite toxic asset losses the banks incur.

However, if this fails, the “bad bank” idea, which buys toxic assets outright, might well be introduced.

By bringing private investors into the bad bank, Geithner is hoping to create an active market for the rotten mortgages which were at the heart of the crisis.

The problem will be finding private investors with the cash to become involved. US analysts said Geithner’s plan was incomplete. “Combined with his comments, it’s rather unpalatable,” one said.

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