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Friday
Sep042009

Rescued banks seek more taxpayer billions

The state bailed out banks have sunk to new depths in trying to spend taxpayers’ money to wriggle out of their financial problems.

Both Lloyds and the Royal Bank of Scotland have had billions from the government to keep trading while squeezing businesses, mortgages payers and credit card holders until they almost bleed.

Now, the Financial Services Authority (FSA) has told the Royal Bank of Scotland – the bank that chalked up record losses of £24.1 billion last year – that state aid cannot be spent on paying holders of low rating bank securities. The bank wanted to convert almost £1 billion of debt with state cash.

The Royal Bank of Scotland is 70% owned by the state after billions of pounds of cash and guarantees were poured in to stabilise the bank during the recession.

The FSA has told all UK banks that have received government funding that they cannot spend taxpayer’ cash to repay investors in line with a European Union agreement that has stopped similar moves by state-subsidised banks in other countries.

Meanwhile, the government may have to inject billions more in to Lloyds Bank after the bank tried to avoid commitments to the asset protection scheme for bad loans.

Lloyds will need a further £4 billion of taxpayers’ cash if Chancellor Alistair Darling agrees the proposal. The bank has already had £17 billion of taxpayers’ cash for a 43% public stake.

The APS is an insurance scheme designed to help banks with bad loans. 

Because the value of the assets has plunged in value, banks are reluctant to lend because the falling asset price weakens their balance sheet. To shore up the bank balance sheets, the government guarantees the loans with the aim of freeing up lending to aid economic recovery from the recession.

The problem is the banks have pulled their wagons in a circle and despite the billions they have received from the government, still seem to be looking for ways to clean up their debts without spending their own cash.

The big question has to be is pumping state cash in to the banks worth the bother if all they are trying to do is spend someone else’s cash to get out of debt while making borrowing almost impossible for business and individuals.

 



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