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The UK government launched a second bank rescue plan to reinforce the stability of the financial system and to protect banks from so-called toxic assets. The government will allow banks to insure themselves against losses on their riskiest assets and offers guarantees on their debt.
Issues include:
Ø extending the drawdown window for new debt under the Government’s Credit Guarantee Scheme (CGS) which is designed to reduce the risks on lending between banks;
Ø establishing a new facility for asset backed securities;
Ø extending the maturity date for the Bank of England’s Discount Window Facility which provides liquidity to the banking sector by allowing them to swap less liquid assets;
Ø establishing a new Bank of England facility for purchasing high quality assets;
Ø offering capital and asset protection scheme for banks, with proposals for this to be co-ordinated internationally; and
Ø clarifying the regulatory approach to capital requirements, through an announcement by the FSA.