RBS to plough £325bn into protection scheme

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The Independent Online

Royal Bank of Scotland intends to place £325 billion in toxic assets in a taxpayer-backed protection scheme, the bank said today.

Part-nationalised RBS will use the Government's newly-created Asset Protection Scheme to strengthen its finances.

RBS will pay £6.5 billion to the Treasury to take part in the scheme and be liable for the first £19.5 billion in losses on the assets.

Chief executive Stephen Hester said: "Participation in this scheme would assist us in reducing risk for shareholders whilst providing greater support for UK customers via increased lending.

"It would provide increased certainty to the market by limiting potential losses on a significant proportion of our balance sheet."

Losses on the toxic assets after the initial "first loss" would be borne 90 per cent by the Treasury and 10 per cent by RBS. The scheme will apply to losses from the beginning of 2009 only.

RBS said taking part in the scheme would mean it would be able to boost lending by £25 billion this year.

Where there is demand - and where homeowners and businesses meet the banks' credit and pricing criteria - the bank will make £9 billion available for mortgage lending and the remaining £16 billion for businesses. A further £25 billion increase is targeted in 2010.

The bank added: "RBS is very much open for business and continues to provide funding support to personal and business customers.

"Its lending to business and commercial customers rose by 10 per cent in 2008."

The Chancellor Alistair Darling said: "We want to ensure that by cleaning up the balance sheet, that by making sure RBS has enough capital, we can get through this period."

He said RBS had also announced a restructuring of the bank, identifying parts that were "core" to its future and "separating away from that those parts of RBS business the bank will want to dispose of when the conditions are right".

Mr Darling went on to acknowledge that there was a cost to the taxpayer, but added that the "cost of not doing it is absolutely colossal".

"You'll remember that when Lehmans, that was a big investment bank in America, went down, that's what precipitated the crisis in the world's banking system.

"That's what led to every government in the world having to recapitalise those banks because they were within hours of collapse."