British Government To Partially Nationalize Banks

The British government announced a multibillion-dollar rescue package Wednesday for British banks. The emergency plan partially nationalizes Britain's banking industry. The move comes one day after some banks lost nearly 40 percent of their share value.

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Today, the British government announced a multi-billion dollar rescue package for banks in the UK. The emergency plan partially nationalizes Britain's banking industry. And this move comes one day after some bank shares lost nearly 40 percent of their value. Stock markets around the world continue their nose divetoday. The Nikkei in Japan closed down nearly 10 percent. The Hang Seng in Hong Kong was down five percent. NPR's Rob Gifford is on the line from London. Good morning, Rob.

ROB GIFFORD: Good morning.

SHAPIRO: First, give us the details of this British government plan.

GIFFORD: Well, yes, as you say, it is a partial nationalization of the British banks. It's a massive, massive step for Prime Minister Gordon Brown to take. It consists essentially of three elements that have just been announced this morning. Officials have been working all night on it after those - that bad day yesterday on the London Stock Exchange. The first part is, that the government will buy shares essentially, take equity, up to $90 billion worth of equity in eight high street banks here in Britain. The second element is that the government is going to guarantee the money that banks borrow from other banks. This, of course, is the crucial interbank lending that's so important for homeowners in order to get the money out there, to get the credit flowing in the economy. And the third thing is that they have said they'll expand what they call a 'special liquidity scheme.' And this is to facilitate short term borrowing, which also will help to free up credit markets, and they're making $350 billion worth available for that, so it's a huge package.

SHAPIRO: And so far, how are the markets responding?

GIFFORD: Well, this morning after the announcement, in fact, the FTSE 100 index here in London went down and was trading down five or six percent.


GIFFORD: But crucially the banks - and they are very important in this because of what happened yesterday as you said, banks were trading up. So, I think, there is a feeling that this is going to take a bit of time, a bit of momentum is needed and crucially also the government said, don't judge this package just on how the FTSE does today.

SHAPIRO: Uh huh. Rob, can you just distinguish this British plan from the American bailout that we've been hearing so much about in the last couple of weeks?

GIFFORD: Yes, it is very different. In fact, people talk about the Swedish model. There was a meltdown in Sweden in the '90s and the British model very much follows that much more than it does the Paulson plan that was passed last week. The big difference is the government taking stake in the banks and buying shares, buying equity in the banks, and that's very different. It's just, not just buying up the toxic assets that the banks have on their books, and that - the hope is that by putting taxpayers money into ownership - part-ownership of the banks - that, on the upside, when the economy gets better and when the banks get better, taxpayers' money will not be lost.

So there are very stringent conditions as well attached to this and these are crucial because of course here in Britain, as in America, there has been a lot of anger at the bonuses that have been going around in the city of London, but also these debt guarantees are important as well because this - is hoped that it's going to get the lending going and it's kind of really give a kickstart to the credit markets.

SHAPIRO: That's NPR's Rob Gifford in London. Thanks, Rob.

GIFFORD: Thanks very much, Ari.

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