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£37bn Bail-out for UK Banks

The 13th of October 2008 will be a historic day in the UK, as the government paid £37bn of taxpayers’ money into three major UK Banks. Prime Minister Gordon Brown said the bailout was: "Unprecedented but essential for all of us". The three banks are The Royal Bank of Scotland (RBS), Lloyds TSB and HBOS.

The bail-out is hoped to ensure major central banks will offer financial institutions an unlimited amount of short term dollar loans amidst the current financial crisis.

Taxpayers will own a 60% share of RBS and 40% of the merged Lloyd TSB and HBOS, with the government having direct influence on the management of banks including bonuses paid to management.

The London FTSE 100 index rose by 5% as investors reacted to the news. The plan is meant to secure the banks’ futures, but it also means profits will have to be shared with the government. In addition, a condition of the bail-out will mean that banks will not be paying dividends to their shareholders (senior directors should not get bonuses this year, with future bonuses to be paid in the form of shares).

However, despite today’s bail-out, shares in RBS, Lloyds TSB and HBOS have fallen sharply. In the meantime, the government is hopeful that the bail-out will help the economy, time will tell though if the UK economy can be saved.

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