Saturday 22 November 2008

Nationalisation Threat to Banks

THE INDEPENDENT: Banks are told to do their bit for the economy / Downing Street considers 'nuclear option' to make lenders release cash

The Government is using the threat of a wholesale nationalisation of banks in an attempt to force institutions to lend billions to small companies struggling to survive as Britain slips into recession.

Downing Street yesterday made plain its fury over high street banks which refuse to use the massive injection of taxpayers' money they have received to come to the rescue of businesses hit by the credit crisis. Lenders have also faced criticism over interest rates charged to homeowners and for stepping up repossessions.

Meanwhile, Gordon Brown dismissed suggestions that he should take advantage of his reviving popularity by calling a June general election, insisting he was fully focused on steering Britain out of the downturn, starting with Monday's pre-Budget report.

It will spell out plans for tax cuts and assistance for the country's 4.7 million small firms. The aid will be funded by increases in government borrowing, which is on course to exceed £100bn next year. Alistair Darling, the Chancellor, will also announce that taxes will have to rise in the medium term to reduce the national debt. The financial stimulus package is designed to breathe new life into the economy but Mr Darling fears the behaviour of the banks could undermine the moves.

He is expected to announce controlson the interest rates charged on small business loans, as well as measures to stem the rising tide of repossessions.

Ministers are irritated that banks the Treasury bailed out are dragging their feet over passing on the money. The Treasury took stakes in HBOS, Lloyds TSB and Royal Bank of Scotland in return for £37bn of public funds. The banks promised to return lending to last year's levels. John McFall, the chairman of the Treasury select committee and an ally of Mr Brown and Mr Darling, raised the prospect of state control, saying: "If the banks do not play ball, and will not resume lending, then the demand for full-scale nationalisation may well grow."

No 10 refused to rule out such a step, regarded by officials as the "nuclear option". Mr Brown's spokesman said: "In these circumstances, of course we have got to look at all the options. But we want to work constructively with the banks to ensure they fulfil the commitments they have entered into."

Asked a second time about full nationalisation, he replied: "It would clearly be foolish for anybody to rule out specific options at this stage."The Government has made little effort to disguise its frustration at the behaviour of banks towards small businesses and mortgage-payers. >>> By Nigel Morris, Deputy Political Editor | November 22, 2008

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