Magazine article Public Finance

Bail-Out Risks Public Funds, Experts Fear

Magazine article Public Finance

Bail-Out Risks Public Funds, Experts Fear

Article excerpt

Economists have warned that ministers' latest bank bail-out package could still produce losses to the public purse.

Chancellor Alistair Darling announced a fresh injection of £39bn capital into the Royal Bank of Scotland and Lloyds Banking Group on November 3 - adding to last October's £37bn bail-out.

Prime Minister Gordon Brown said the end result of the deal would be that 'the banks will be paying money to the British public and not the other way around'.

The package will give RBS £25bn of extra capital funding and provision for another £8bn to protect against what the Treasury called 'a worst-case scenario'. The deal will insure the £282bn of the bank's assets against serious losses.

Lloyds will no longer remain in the Asset Protection Scheme, and announced plans to raise £21bn through a combination of a £13.5bn rights issue and a £7.5bn debt for equity swap. But the government will pump in another £5.7bn to retain its 43% shareholding.

The Treasury said the package would reduce the liabilities to be borne by the public finances by more dian £300bn. But it was likely to increase the government's net cash requirement by £13bn on the Budget figures.

Professor Ray Barrell, director of forecasting at the National Institute for Economic and Social Research, told Public Finance that the new package was 'absolutely necessary", adding 'It's a sensible policy because we want zero risk of the banks collapsing. …

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