Gordon Brown hails 'bold' £50bn rescue plan for UK banks
Gordon Brown hailed the Government's £50 billion emergency rescue plan to part-nationalise stricken banks today, saying it should restore "confidence and trust" to the financial system.
The Prime Minister told a Downing Street news conference: "Extraordinary times call for the bold and far-reaching solutions that the Treasury has announced today.
"Our stability and restructuring programme is comprehensive, it is specific and it breaks new ground.
"This is not a time for conventional thinking or outdated dogma but for the fresh and innovative intervention that gets to the heart of the problem."
Chancellor Alistair Darling said that the scheme will see taxpayers' money used to buy stakes in major banks in an attempt to halt the meltdown in the financial sector.
And the Government said it stood ready to make at least another £25 billion available for other eligible institutions.
The Bank of England is also extending the existing £50 billion Special Liquidity Scheme to £200 billion, while a further £250 billion being pumped in under a debt guarantee scheme.
It is hoped that the extraordinary measures will provide the capital boost needed and help restore confidence to get banks lending to each other again.
But the Government is demanding that in return for the public-backed cash injection, banks must cap executive pay and shareholder dividends and commit to supporting lending to homebuyers and small businesses.
Details of the stake-buying scheme reveal that taxpayers will buy preference shares in the banks, which means that they will be first in line for the pay-out of dividends.
The Government sought to give assurances that taxpayer interests would be protected.
A statement said: "If the Government is to provide the capital, the issue will carry terms and conditions that appropriately reflect the financial commitment being made by the taxpayer.
"In reaching agreement on capital investment, the Government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers."
Eight UK banks and building societies - including RBS, Barclays, HBOS, Lloyds TSB and Nationwide - have signed up to an initial £25 billion scheme.
The bail-out comes after another day of panic on the stock market, with banks suffering devastating share losses amid concerns over their funding. Royal Bank of Scotland shares fell by almost 40 per cent.
The Prime Minister said the recovery plan would be funded through increased borrowing but insisted taxpayers would "earn a proper return".
"All these are investments being made by the Government which will earn a proper return for the taxpayer," he told reporters.
"This support is on commercial terms. We expect to be rewarded for the support we provide."
Asked if taxes would rise to pay for the package, he said: "This is initially met by borrowing.
"But remember, this is not the American plan. The American plan is to buy up the state assets by state funds.
"The £50 billion is to buy shares and therefore we will have a stake in the banks and we will get the upside in the appropriate cases from what we have done."
Mr Brown said global action was also required, announcing that the UK had put forward plans this morning to other European countries.
"We have invited other European countries to consider proposals we have put to them this morning on medium-term funding and we are in active consultation about how we can adopt a European-wide funding plan. I have spoken to (French) president Sarkozy this morning about this."
Britain is also in discussions about a meeting of world leaders, he said.
"We are ready to put British proposals to such a meeting.
"This comprehensive set of decisions on stability, on restructuring and on financing are the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses and thus help the economy move forward.
"These decisions are the best way of providing long-term security for depositors and savers."
Asked why he would not offer a concrete guarantee to all savers that their deposits were safe, Mr Brown stressed that no one had yet lost out in any of the banks which had hit difficulty, such as Northern Rock and Bradford & Bingley.
The same support was also being given to those with money in troubled Icelandic bank Icesave, he said.
"We are showing by our actions that we stand by people who save in Britain," he said, promising legal action against the Icelandic authorities to recover the funds.
Mr Darling said he still did not "rule anything out" but, of today's package, he said: "I believe it will go a long way."
He admitted he had been "irritated" by speculation about the package since Sunday because the Government was working on the package.
"I wanted to announce it when the time was right, when we had got everything sorted out, we had a scheme that worked and the big banks were signed up to it," he said.
"And we actually finished these discussions only a few hours ago."
Mr Darling said it was "absolutely not" true that the chairman and chief executive of Royal Bank of Scotland would lose their jobs as part of a deal with the Government.
"It's not the Government's business to deal with banks' appointments," he said. "It is entirely a matter for banks."
Shadow chancellor George Osborne said the Tories would be "as constructive as possible".
"We want this to work, we hope it will work," he told BBC Radio 4's Today programme.
"This is the final chapter of the age of irresponsibility and it's absolutely extraordinary that a government has been driven by events to today's announcement."
Mr Osborne said it was the "right thing" to provide for the recapitalisation of the banks and some guarantees of the inter-bank market.
But he added: "I want to make sure - and I hope that in detailed negotiations with the individual banks the Chancellor makes sure - that this money is used to allow credit to flow through the economy again, to get that loan extended to the small businesses who need it, to get the family mortgage extended, it is not used to pay bonuses for bankers.
"I think people would be shocked if bonuses were being paid to the banks that take this money."
HBOS, which is in the process of being taken over by Lloyds TSB, said it welcomed today's announcement.
"The Government's announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system.
"HBOS believes that this initiative is very much in the interests of its shareholders and customers."