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Financial Crisis Impact On Uk Government

ROLE OF THE GOVERNMENT

The UK government has announced a package of measures aimed at rescuing banking system that makes 400 billion pound.
100 billion pound will be available in short term loans from bank of England on top of an existing loan facility.
Banks will have to increases their capital by at least 25 billion pound and borrow from government.
An additional 25 billion pound in extra capital will be available in exchange of preference shares.
Government described as the root cause of current financial crisis is liquidity, capital and funding
At least 200 billion pound will be made available from bank of England for short term borrowing to provide liquidity to banks
Those banks who wished to strengthen capital ratios through the government is required to maintain bank recapitalization fund.

GOVERNMENT SUPPORT TO NORTHERN ROCK

Northern Rock announced that they would be offering £14 billion worth of new mortgages, over the next two years, as a part of their new business plan. This type of new lending will be partly funded by an increase in the government loan, a reversal of previous strategy to pay the loan off as quickly as possible by actively encouraging mortgage customers to leave when their mortgage deal matures. The reason for this change being government policy to increase the availability of credit. This £14 billion will be split into £5 billion in 2009 and £9 billion in 2010.
The Government announced guarantee arrangements in all existing retail savings in, certain existing wholesale liabilities of, Northern Rock. Govrnment asked northern rock bank for immediate financial suppot from bank of England. Government have taken northern rock bank into temporary public ownership using powers under banking act. and announced that it would strengthen Northern Rock’s capital position by converting up to £3 billion of the Government loan into equity, and converting £400 m of preference shares into ordinary shares.

GOVERNMENT SUPPORT TO...