Britain chooses Swedish model for recapitisation of all UK banks

Darling plans ‘big steps’ to aid UK banks

By George Parker, Political Editor

Published: October 5 2008 23:31 | Last updated: October 5 2008 23:31

Alistair Darling was on Sunday considering a dramatic taxpayer-funded recapitalisation of Britain’s banks, amid signs of cross-party and central bank support for an effective part-nationalisation of the sector.

The chancellor said on Sunday he was “looking at some pretty big steps which we would not take in ordinary times”. Government officials say these include a contingency plan for the taxpayer to inject capital into ailing banks.
EDITOR’S CHOICE
Momentous week for Darling - Oct-05
Comment: We will help give banks capital - Oct-05
Banks braced for insurance crackdown - Oct-03
Banks face crackdown on loan insurance sales - Oct-01
Regulator warns industry over PPI - Sep-30
Banks fight ‘name and shame’ move - Sep-09

Although the Treasury said no decision had been taken to activate any contingency plan, it would not rule out a voluntary bank recapitalisation scheme. “It is a pretty fast-moving situation,” said one official.

David Cameron, writing in Sunday’s Financial Times, signals Conservative support for “drastic capital measures” which would see the taxpayer offering to take an equity stake in banks, to give them the financial strength to begin lending again.

“It is possible to imagine the circumstances in which government injections of capital, with proper safeguards and strict conditions, may be the best way to safeguard the long-term interests of the taxpayer,” he says.

Mervyn King, governor of the Bank of England, who met Mr Cameron last week, is also thought to favour a recapitalisation plan to supplement the central bank’s own operations to boost liquidity to the financial system.

The scheme, which has echoes of a similar operation by the Swedish government in the early 1990s, would be available to all banks. In exchange for the capital injection, taxpayers might be protected through preferred shares or warrants, giving them generous dividends in future.

Vincent Cable, Liberal Democrat treasury spokesman, also favoured recapitalisation, arguing it gave shareholders “the upside when banks recover”. He said the situation was now so grave that a piecemeal approach to failing banks was no longer sufficient.

With the prospect of a consensus behind the approach, Mr Darling may decide the recapitalisation plan is the best way to deliver a shot in the arm to the banking system. The Treasury regards it as preferable to the $700bn (£394bn) US bank bail-out in which the taxpayer buys toxic assets.

Mr Darling will on Wednesday set out how he intends to manage the deteriorating public finances during the downturn, while on Thursday the Bank of England is widely expected to cut interest rates from 5 per cent.

The chancellor will give a statement to MPs on Monday on the financial turmoil, as the Commons returns after its summer break. Meanwhile, Gordon Brown will on Monday convene the first meeting of the National Economic Council, a cabinet committee set up to co-ordinate the response to the economic situation. Peter Mandelson, the new business secretary, will be among those attending.

Copyright The Financial Times Limited 2008

 

Meanwhile despite the existance of proven (albeit Wall St unfriendly) models such as this one and the IMF Asia model Paulson is using an unproven model. This is sheer insanity, or rather putting the interests of the elite ahead of the rest of the population.

 

I applaud the use of a Swedish Model. It will take our minds off this whole mess.

http://media.newtimes.com/id/49047/0

 

I wonder how can do this and still maintain private property rights

 

Cool. Now if you get turned down for a loan you can just look in the mirror and call yourself a mean, heartless banker......

 

Watch and learn.