On January 19, the U.K. government launched its second rescue plan to insure banks against further losses. This plan offers guarantees on banking debt and increases government purchases of high-quality securities.
The main pillars of the program are:
The total cost of this rescue plan remains to be seen. The government has not offered any estimates, pointing out that it cannot know the amount of protection that will be sought.
In October 2008, the U.K. government announced a GBP 400 billion (USD 570 billion) package that included GBP 37 billion (USD 52.7 billion) of capital injections into Royal Bank of Scotland (RBS), HBOS and Lloyds TSB Group. It has since been found that this was not enough for banks to resume lending as normal.
The new plan was announced after RBS recorded the biggest losses in British corporate history, estimating that they could lose as much as GBP 28 billion (USD 39.8 billion). The state’s share in RBS will now soar from 58 percent to 70 percent.
For financial markets, the renewed trouble and the necessity of a new bailout package raised further concerns on the outlook for the U.K. economy and caused the pound to fall significantly.