Britain's bank rescue plans

Britain has launched two bank rescue packages in the past six months to improve lending as the economy slips into its first recession since the early 1990s and banks reel under the impact of the credit crisis.

The government bought heavily into the banking sector as part of the package, and now owns a 70 per cent stake in Royal Bank of Scotland and 43 per cent of Lloyds Banking Group, which agreed to buy rival HBOS in September in a government-brokered deal.

It had earlier already nationalised two banks with heavy exposure to the country's ailing mortgage market, Northern Rock and Bradford & Bingley.

Barclays, HSBC, Nationwide Building Society, Standard Chartered, and Abbey National, owned by Spain's Santander, have taken part in other parts of the scheme, but have not taken government funds.

Selected measures from the January 2009 rescue package are:

• Banks will identify their riskiest assets, which they can then insure against future losses with the government for a fee.

• Banks participating in the programme must have a minimum core tier one capital ratio of four per cent.

• The government will swap its preference shares in RBS worth £5 billion for ordinary shares, aiming to remove pressure on RBS to pay 12 per cent annual interest.

• Extension of state guarantees on debt issued by banks that were recapitalised. With an initial fund of £50 billion, the Bank of England (BOE) may also buy high-quality private sector assets, such as corporate bonds.

• The BoE extends its Discount Window to one year for an incremental fee of 25 basis points, allowing banks to borrow government bonds against a wide range of collateral.

Measures from the October 2008 bailout:

• The government spent €37 billion buying stakes in UK banks to boost their capital.

• The BoE will make at least €200 billion in loans available to banks via auctions to improve liquidity.

In September, Britain nationalised buy-to-let lender Bradford & Bingley. The Treasury said it would take over B&B's £50 billion mortgage portfolio and sell its deposits and branches to Spanish bank Santander.

In February last year, Britain also nationalised Northern Rock, after it was unable to find a buyer, five months after the mortgage bank took emergency loans of about £25 billion from the Bank of England.