New bailout 'is not a blank cheque'

Gordon Brown insisted today he was not handing a "blank cheque" to banks which have taken on bad loans - but refused to say how many more billions the taxpayer would be asked to underwrite.

The Prime Minister was under pressure to spell out the cost to the public purse after announcing a second massive bailout of the banks in an attempt to unblock the flow of credit.

The Treasury is to insure banks against potential losses from "toxic" assets as it tries to restore confidence to the ailing sector.

The premier said the scale of the asset guarantees was yet to be negotiated with individual banks but insisted they would be required to improve lending facilities in return for support.

"It's for the Treasury to decide after an analysis of the banks, in a published way, what is the insurance we are prepared to take on this and what the cap is going to be," he told a Downing Street press conference.

"I think you would be completely misunderstanding the situation if in any way you were suggesting this was a blank cheque. Quite the opposite.

"At every point, conditions are laid and the greatest condition of all is that in return for our support for the banking system they have an obligation to lend to small businesses and to families in this country."

In a bid to increase lending to the country's largest companies, the Prime Minister also announced the Bank of England would be buying up to £50 billion of "high-quality" assets from banks and other financial institutions to improve liquidity.

Further efforts to reinvigorate the stalling mortgage market will include an extension of the credit guarantee scheme.

State-owned Northern Rock is also to slow its strategy of winding down its mortgage book.

And he voiced anger at the "irresponsibility" of bankers, insisting the Government's measures were not to help them but to support those in need of credit.

He said he was "angry" about the record losses racked up by Royal Bank of Scotland - which could hit £20 billion for 2008 - but refused to say whether action should be taken against former chief executive Sir Fred Goodwin or other senior figures.

"It is not for me to talk about what action, for example, the Financial Services Authority or any other authority takes," Mr Brown said.

"Now we know that so much was lost in sub-prime loans in the US and now we know that some of that was related to the purchase of ABN Amro, I think people have a right to be angry that these write-offs are happening and that these write-offs were caused by decisions that were made about international investments that were clearly wrong investments."

Chancellor Alistair Darling is to negotiate legally-binding lending responsibility agreements with each bank in return for the insurance of their assets, the premier said.

The agreement would include "precise and clear quantitative targets" in increased lending levels, he said.

Mr Darling said the Treasury had already been holding talks with "a couple" of banks over the "backstop" insurance for potentially toxic assets.

However, it was not possible to say how much assistance the Government would offer each institution until full audits had taken place.

"Each bank will have to take a decision on whether they want to take out backstop insurance," he added.

Mr Brown said much of the credit squeeze was down to the withdrawal of lending facilities by foreign institutions, saying the main UK banks were maintaining lending.

"I know from meetings up and down the country that many individual borrowers are facing difficulties," he said.

"A principal reason for this is the reduced availability of credit across the economy because of the retrenchment of many overseas banks back to their home markets and the withdrawal of non-banking financial institutions from funding."

The Prime Minister said the "widest possible" international agreement was needed to ensure the world acted in unison and expressed confidence that US President elect Barack Obama was looking at "similar" measures.

"I believe that unless we come together to address these problems in a co-ordinated way, the world is at risk of a damaging spiral of de-globalising.

"It is fuelled by the combination of de-leveraging and national only policy solutions.

"This financial protection could be every bit as damaging to jobs and businesses in every part of the world, as the protectionism in trade has been in the past."

Mr Brown insisted the measures announced today were temporary and vital to support businesses and jobs.

"I came into politics because of the scourge of unemployment in my own home area and I will not sit idly by and let people go to the wall because of the irresponsible mistakes of a few bankers," he said.

"Good businesses must have access to credit, jobs should not be lost needlessly.

"It is because of this that we are taking the action to expand lending that we are outlining today.

"The impact of today's announcements on public finances will be temporary, investments will be held for no longer than is necessary to ensure stability.

"We will protect taxpayers' interests, liabilities will be backed by assets and fees will be charged for the schemes that we are introducing.

"But the costs of doing nothing are simply too great. These are extraordinary times, they require unprecedented action."



Tory MP John Redwood said it was impossible to say whether the latest package would work.

"We can't tell today, because the Government doesn't yet know how many assets it's going to cover, what sorts of assets they're going to be or what it's going to charge for the insurance," he told BBC Radio 4's The World At One.

"It's an extremely difficult thing they are trying to do. If they are too generous with the insurance amounts they charge the banks then the taxpayer ends up with huge losses for no good reason.

"If they are too tough the banks won't find them an attractive scheme, and these are colossal banks with massive obligations worldwide."

He added: "The taxpayer is standing behind these hugely complex financial transactions that could turn out to be very risky in international markets and I just don't know why we would want to go there."

Liberal Democrat Treasury spokesman Vince Cable warned there were potentially "enormous losses" set to hit assets.

"There are some very reputable people in the City this morning estimating that on a £100 billion insurance scheme the taxpayer could lose £30 to £40 billion.

"If this isn't very, very carefully structured, there are enormous losses on a scheme that very clearly hasn't been properly thought through."

City Minister Lord Myners said the assets insured by the Government could be "very large" but insisted the Government would know the potential extent of its liabilities.

"There is no blank cheque here," he said.

"Business obviously involves some uncertainty, but as far as the insurance scheme is concerned it is very clear we will know the liabilities we are insuring, we will know the likely maximum loss, the probable loss and importantly we will have a premium and conditions from the banks to extend new lending."

Challenged as to whether the insurance scheme could cover liabilities of £100 billion, he said: "The scale of the assets involved could be very large.

"The actual scale of risk is far, far less. In nearly all these cases we will be getting assets in exchange for the money that's being spent."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Kellie Bright as Linda Carter and Danny Dyer as Mick Carter

EastEnders Christmas specials are known for their shouty, over-the-top soap drama but tonight the show has done itself proud thanks to Danny Dyer.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Call The Midwife: Miranda Hart as Chummy
tvCall the Midwife Christmas Special
Sport
Laura Trott and Jason Kenny are preparing for the Commonwealth Games in Glasgow
sport
Arts and Entertainment
Sir Bruce Forsyth with Tess Daly in the BBC's Strictly Come Dancing Christmas Special
tvLouis Smith wins with 'Jingle Bells' quickstep on Strictly Come Dancing's Christmas Special
News
news
Arts and Entertainment
tv
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Austen Lloyd: Residential / Commercial Property Solicitor

Excellent Salary: Austen Lloyd: DORSET MARKET TOWN - SENIOR PROPERTY SOLICITOR...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there