Britain’s largest banks will be part-nationalised Wednesday morning after Gordon Brown took the momentous decision to pump tens of billions of pounds of public money into the sector to avert a banking collapse. The massive public bail-out comes after a day of turmoil on the London stock exchange, where shares in banking group RBS fell 39% after sliding 20% the day before. Rival HBOS fell 41%. Amid the escalating banking crisis, the prime minister sanctioned the recapitalisation of top UK banks in an effort to restore confidence in the system and to enable them to start lending again. The scheme’s total cost was estimated at £35bn-£50bn although details were still being finalised before a Wednesday statement by chancellor Alistair Darling. RBS, Barclays and Lloyds TSB – which is acquiring HBOS – are expected to be the main recipients of the capital. It was unclear whether HSBC, which has stronger capital reserves, would participate in the plan. Under the scheme, the government is likely to acquire preferred shares guaranteeing a fixed rate of interest, although it was unclear if existing shareholders would have the opportunity to participate. Separately, the FT says that while the planned bail-out stops short of complete nationalisation, the behaviour of banks that participate in the scheme will come under increased scrutiny. See also FT.com’s Q&A on the UK’s bail-out plan.
