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Banks in line for £40bn bail-out - paid for by the taxpayer
Last updated at 00:37am on 18.04.08
Rescue: The Bank England has been asked to take mortgages off banks' books
A deal to lend financial institutions up to £40billion could be in place as early as next week.
Any taxpayer-funded rescue would be hugely controversial and seen as a "reward for failure".
Despite the credit crunch turmoil, banking bosses have been able to rack up millions of pounds in bonuses.
Vince Cable, the LibDem Treasury spokesman, said: "We cannot have a situation where the banks are able to privatise their profits and nationalise their losses.
"The Government must now insist on a orderly programme for identifying the losses in the banking system to ensure the banks themselves cover those losses.
"This looks like rewards for failure and irresponsibility."
Leading City of London bankers have asked the Treasury and the Bank of England to take mortgages off their books.
Attack: Lib Dem Treasury spokesman Vince Cable has branded the rescue plan 'a reward for failure'
They say this will ease the flow of money through financial markets and prevent further casualties in the banking sector.
Sources said the deal could involve handing commercial banks government bonds, which are the safest form of debt.
In return the banks would be able to offload their mortgagebased investments on to the Government. The proposed asset "swap" could last as long as two years.
The Federal Reserve has implemented a similar scheme in the U.S. Mortgage assets have become tainted by the American subprime fiasco, triggering a collapse in confidence in the banking system.
A Government source said: "Clearly there is a need for extra liquidity in the system, therefore the work we are taking forward with the Bank of England is a high priority."
A City source said an asset swap would be a bold move.
He added: "It is not every day of the week that the Government thinks about something of this scale."
If the Government does step in, there will be calls for struggling borrowers to be treated more generously.
Reader views (10)
Sure, they can have £40m of our tax... by cutting £40m out of the tax system so we can afford to pay it. We are already taxed enough. To ask us for even more of something we don't have, to support banks who have returned nothing to their customers in the last 10 years of "boom", is little short of idiocy.
- Nobby Clark, Perth, Scotland
The price to the banks of any bail out should be a moratorium on both dividends to shareholders and bonuses to staff until they have their houses back in order. The idea of the 'guaranteed bonus' has to be knocked on the head forthwith.
- Paul, London
This an outrageous attempt to keep the housing bubble inflated at the taxpayers expense. It is simply going to make things worse.
- George, London
You knew in the end that you, the taxpayer, would cover the cost of heading off any downside to those involved in house price speculating over the last 10 years! All of Gordon's solutions come down to outputs from the public purse. That's his big answer to everything. A socialist on a bigger scale than the Soviet machine every dreamed of.
- Phil Jones, London UK
So, the BoE interest rate goes down and banks increase their lending rates, they then complain that they can't afford it and need the BoE (us taxpayers) to bail them out. So, that being the case, every bank that will be bailed out by this fund will presumably be reporting nominal payouts to their shareholders come their yearly reports will they? No, thought not.
- Sadie Sticbank, Stockwell
Unbelievable the Government is going to force taxpayers who can't afford to buy a house to bail out the banks in order to help keep house prices at an unaffordable level.
- Barry, Tonbridge.
If the government is going to bail out the banks then it stands to reason that they must also bail out any other private business (big or small) that is facing liquidity issues!
Rewarding banks "exclusively" for failure is "utter nonsense" and is likely crystal clear discrimination against other private businesses!
Indeed, there could be Convention Rights & Human Rights implications on any such move by Gordon Brown's New Labour government!
- Fraser, Telford Park
Why should they Listen to Brown or Darling, no one with any half sense would either?
- Ben, London, UK
But the bank base rates just came down, didn't they?
And Gordon Brown, the Prime Minister, told the mortgage lenders to pass on the reductions to borrowers, didn't he?
Don't mortgage lenders pay "any attention" to Gordon Brown?
Doesn't this simply mean significantly more doom and gloom for home owners with mortgages?
- Fraser, Telford Park
Yes, the Halifax obviously took a lot of notice of Brown and Darling!
- Paul, London
