£37bn taxpayer lifeline for banks

Oct 13 2008

A £37 billion taxpayer lifeline was thrown to three of the UK's biggest banks in a bid to end the sector's turmoil.

The government will take "significant" stakes in Royal Bank of Scotland, Lloyds TSB and Britain's biggest mortgage lender, Halifax Bank of Scotland, under the historic plan.

But the investment will come with strings attached, including curbs on management bonuses and a pledge to ensure the availability and supply of lending to small businesses and homeowners.

Under the plan, £5 billion will be injected into Royal Bank of Scotland by the Treasury, with a £15 billion share issue by the bank also guaranteed by the Government.

Lloyds TSB and its proposed new partner HBOS will receive up to £17 billion of emergency funding, while the price Lloyds TSB is paying for its rival is also being lowered.

The bail-out move restored some confidence in London shares with the FTSE 100 Index closing more than 8% higher.

The deal has claimed the UK's first major scalps of the banking crisis with the chairmen and chief executives of RBS and HBOS standing down.

Prime Minister Gordon Brown said the bail-out was "unprecedented but essential for all of us".

But Conservative leader David Cameron said the package was "painful and expensive" and represented "the day that the bills came in for a decade of too much borrowing".

He added: "It's not a day to be triumphant, not a day for celebration."