LONDON (Reuters) - UK Treasury says it will give financial support to banks to provide sufficient liquidity in the short term.
* At least £200 billion will be made available to banks under the
special liquidity scheme to UK banks and building societies to
strengthen their resources permitting them to restructure their finances,
while maintaining their support for the real economy
* UK has informed the European commission of these proposals
* Ensure that the banking system has the funds necessary to maintain
lending in the medium term.
* In addition the government is establishing a facility, which will
make available Tier 1 capital in appropriate form (expected to be preference
shares or PIBS) to eligible institutions.
* Bank OF England next week will bring forward its plans for a permanent
regime underpinning banking system liquidity, including a discount window
facility
* Eligible institutions are UK incorporated banks (including UK
subsidiaries of foreign institutions) which have a substantial business in
the UK and building societies.
* UK government - to qualify for this support the relevant institution must
raise Tier 1 capital by the amount and in the form the government considers
appropriate
* Until markets stabilize, the BoE will continue to conduct auctions
to lend sterling for three months, and also US dollars for one week, against
extended collateral.
* Institutions comprise: Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, RBS, Standard Chartered. These institutions have committed to the government that they will increase their total Tier 1 capital by 25 bln stg
* In addition to this, the government stands ready to provide an incremental minimum of 25 bln stg of further support for all eligible institutions
* The amount to be issued per institution will be finalized following
detailed discussions.
* If the government is to provide the capital, the issue will carry
terms and conditions that appropriately reflect the financial commitment
being made by the taxpayer
* The current expectation is that the guarantee would be issued
out of a specifically designated government-backed English incorporated
company
* Government will need to take into account dividend policies and
executive compensation practices and will require a full commitment to
support lending to small businesses and home buyers.
* UK has informed the European commission of these proposals and is actively talking to other countries about extending these proposals
* The Government will make available to eligible institutions for an interim period as agreed and on appropriate commercial terms, a Government guarantee of new short and medium term debt issuance to assist in refinancing maturing, wholesale funding obligations as they fall due. Subject to further discussion with eligible institutions, the proposal envisages the issue of senior unsecured debt instruments of varying terms of up to 36 months, in any of sterling, dollars or Euros.
* The current expectation is that the guarantee would be issued out of a specifically designated Government-backed English incorporated company. The Government expects the take-up of the guarantee to be of the order of 250 bln stg, and will keep this under review alongside ongoing monitoring of capital positions and lending volumes.
