Britain’s largest banks were last night preparing to boost their capital reserves after the government launched a £400bn rescue plan to restore confidence among financial institutions and avert a severe economic slowdown.
The three-pronged plan, rushed out yesterday morning after officials worked through the night, could see the government investing as much as £50bn in the banking industry while offering guarantees over as much as £250bn of new bank debt and adding £100bn to the existing Bank of England short-term loan scheme.
In spite of the offer of government capital, several bank executives last night said they would first attempt to raise fresh capital from private investors. HSBC, Standard Chartered and Abbey, the UK arm of Santander of Spain, said they would not seek government capital. Royal Bank of Scotland, Barclays and Lloyds TSB, which is in the middle of a takeover of HBOS, are seen as more likely to use the scheme, which could see the government buy preferred shares paying a fixed rate of interest, or underwrite issues of ordinary shares.
Banks taking up the government’s offer of capital will face constraints on their ability to increase dividends or offer executives large bonuses, and will be expected to make commitments to continue lending to small businesses and housebuyers.