The package will make available Tier 1 capital in appropriate form to “eligible institutions”, and will make available a Government guarantee to assist in refinancing maturing, wholesale funding obligations as they fall due.
The UK Government will bring forward specific and comprehensive measures to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers.
The measures shall provide sufficient liquidity in the short term and make new capital available to UK banks and building societies to restructure their finances. They should also insure that the banking system has the funds necessary to maintain lending in the medium term.
The Bank of England will make available at least £200 billion to banks under the Special Liquidity Scheme and will continue to conduct auctions to lend sterling for three months, and also US dollars for one week, against extended collateral. The Bank next week will bring forward its plans for a permanent regime underpinning banking system liquidity, including a Discount Window facility.
The Government is establishing a facility, which will make available Tier 1 capital in appropriate form to “eligible institutions”.
Eight major UK banks and building society (Abbey; Barclays; HBOS; HSBC Bank; Lloyds TSB; Nationwide Building Society; Royal Bank of Scotland; Standard Chartered) have confirmed their participation in a Government-supported recapitalisation scheme and have committed that they will increase their total Tier 1 capital by £25bn by the end of the year.
Government is making available £25bn to be drawn on by these institutions if desired to assist in this process as preference share capital or PIBS and is also willing to assist in the raising of ordinary equity if requested to do so.
In addition to this, the Government stands ready to provide an incremental minimum of £25bn of further support for all eligible institutions, in the form of preference shares, PIBS or, at the request of an eligible institution, as assistance to an ordinary equity fund-raising.
Specifically the Government will make available a guarantee of new short and medium term debt issuance to assist in refinancing maturing, wholesale funding obligations as they fall due.
The proposal envisages the issue of senior unsecured debt instruments of varying terms of up to 36 months. The Government expects the take-up of the guarantee to be of the order of £250bn.
Press release
Bank of England Press release
© HM Treasury
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