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Brown's latest big idea: state-run 'bad bank' to buy billions in debts
Paul Waugh, Deputy Political Editor16.01.09
A STATE-OWNED "bad bank" could buy up tens of billions of pounds worth of bank debts in a fresh attempt by Gordon Brown to shore-up Britain's fragile financial industry.
The Prime Minister and Chancellor Alistair Darling are drafting plans to take on the "toxic" assets and loans undermining the balance sheets of many banks.
The move, which could be part of a package of new measures unveiled by the Treasury next week, came as the US government today launched another massive bank bail-out.
US investment banking giant Bank of America was given another $20 billion as governments around the world were forced into further emergency moves to stop the credit crunch from turning the recession into a global depression.
Bank of America, which employs about 8,000 staff in Britain, was granted the fresh round of state aid to help it absorb losses from the takeover this month of struggling rival Merrill Lynch.
In Ireland, Anglo Irish Bank is to be nationalised, it was announced last night. The US government is also guaranteeing £118 billion of "stinky" loans held by Bank of America.
Meanwhile Citigroup is expecting to post "terrible" fourth-quarter figures today as it outlines a fresh strategy for coping with the crisis. Some Government insiders cautioned that although progress could be unveiled next week, it could take much longer to devise a fully working "bad bank".
Despite the unprecedented £37 billion government bailout and a recent offer of guarantees to support lending to small and medium-sized businesses, shares in British banks have been falling in recent days.
The Bank of England is also expected to offer tens of billions of pounds in credit to banks to fund loans for homeowners and businesses.
Mr Brown and Mr Darling are due to meet representatives from the Treasury, the Bank of England and several financial institutions in a bid to thrash out a deal. Among the other proposals being considered are plans to ring-fence assets on banks' balance sheets.
Further government investment in the banks - a new banking bail-out - seems less likely, although given the scale of the crisis this option has not been definitively ruled out.
Mr Brown discussed the problem of the high-risk loans yesterday following an interview with the German Chancellor Angela Merkel in Berlin.
He said action would be needed to deal with the "toxic" assets held by the banks and not yet written off.
In a separate move to reassure voters, housing minister Margaret Beckett today announced how a mortgage rescue scheme for households with an annual income of less than £60,000 would be rolled out across England.
The £200 million programme allows households to reduce their monthly mortgage payments by selling a share in their home to a housing association, or to sell the property to the association outright and remain in it on subsidised rents.
