A modest proposal

Now that taxpayers are each about to receive a £2,000 stake in Britain's banks (thanks, Darling), can I suggest that their former owners and major shareholders be expropriated and the monies received put toward a national holiday (indefinite) during which the new stakeholders and their non-citizen partners, together with those of the other bank-owning nations, decide which financial institutions to axe (all of 'em?) and which activities to continue under our direct control? Former bank owners will definitely have a part to play of course, and they are welcome to lend a hand in the transfer of property from minority to majority ownership. To ensure an orderly transition we'll need those bunglers in the treasury to keep out of the process henceforth, however.

B

Massive rescue plan for banks

By George Parker and Chris Giles in London and Tony Barber in BrusselsTuesday Oct 7 2008 16:35 continued from previous page

Royal Bank of Scotland, Barclays and Lloyds TSB - which is in the midst of a takeover of HBOS - are expected to be the main recipients of the capital. It was unclear whether HSBC, which already has stronger capital reserves, would participate in the plan, although if it does it is likely to take a smaller amount.

The bail-out is likely to be executed through the government acquiring preferred shares guaranteeing a fixed rate of interest, although it was unclear last night if the banks could issue such securities without offering existing shareholders an opportunity to participate.

The rescue will be presented as part of a wider attempt to reform markets and is expected to include a call to the banks to show responsibility over remuneration for bosses, now that the taxpayer has a direct stake.

Mr Darling, who will make a Commons statement on Wednesday, wanted more time to form a full package but was forced to act by the market chaos and by circulated reports that banks wanted an injection of public money. At £50bn, the recapitalisation of Britain's banks would more than double planned public borrowing this year, pushing public sector net borrowing close to £100bn and more than 6 per cent of national income, worse than any year since 1994-95.

The recapitalisation will deliver a huge boost to the banks' core Tier One capital - the preferred measure of balance-sheet strength. This is expected to give the market greater confidence about the banks' ability to absorb future losses.

However, the government's move has a broader significance because it will also send a strong signal to the banks' creditors that they are, in effect, protected from future losses. Concerns about losses among creditors, triggered by the collapse ofLehman Brothers, the Wall Street bank, are the main reason why banks have recently struggled to access the funding markets.

Meanwhile, Spain became the latest European nation to take unilateral measures to tackle the global financial crisis, announcing a €30bn-€50bn (£23bn-£39bn) emergency fund to provide liquidity to the financial system by buying Spanish bank assets. José Luis Rodríguez Zapatero, prime minister, said that the temporary fund was designed to provide credit for borrowers starved of funds by the seizing up of interbank lending.

EU finance ministers said on Tuesday that each of the bloc's 27 member states would be free to adopt measures ranging from recapitalisation, the purchase of bank assets and state-backed guarantees of bank liabilities.

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