Britain reveals 2nd bank bailout to boost lending

[January 19, 2009]  LONDON (AP) -- Britain revealed Monday a second bailout plan for its ailing banks, aimed at protecting them from bad assets in an effort to boost lending to the wider economy.

The government did not say how much the new plan would cost, but some experts warned it could strain public finances.

The new plan would require banks to identify their riskiest assets and would allow them to pay a fee to insure them with the government. By offering to insure bank loans, the government is exposing taxpayers to billions of pounds of potential losses.

But banks would have to enter legally binding agreements requiring them to lend more money to borrowers, Prime Minister Gordon Brown said Monday.

He said the purpose was to spur lending that isn't happening now. "This is not help for the banks but help for businesses and families," Brown said.

Treasury chief Alistair Darling said the plan was needed because a first bailout announced in October and worth 37 billion pound (about $55 billion) had not done enough to boost the economy and restore bank lending to needed levels.

"Banks all over the world have got themselves in huge difficulties, and frankly governments all over the world are having to sort the problem out," he said.

The plan also includes efforts to boost mortgage lending and a 50 billion (about $74 billion) set-aside to create a special fund for the Bank of England to buy high quality loans and other assets directly from banks.

The government announcement coincided Monday with a report by the Royal Bank of Scotland saying its losses for the full year could be as much as 28 billion pounds ($41.3 billion), which would be the biggest loss ever by a British corporation.

Royal Bank of Scotland shares fell 25 percent in morning trading on the London Stock Exchange, but Barclays was up 19 percent, regaining ground lost in a late sell-off on Friday. Lloyds Group was up 1.6 percent and HSBC was little changed.

[Associated Press; By DAVID STRINGER]

Associated Press writer Nancy Zuckerbrod contributed to this report

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