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Finance

Banks welcome rescue plan

08/10/2008

The government's banking rescue package has been broadly welcomed by unions and banks, although shareholders have expressed concern over the plans.

Sir Fred Goodwin, chief executive of Royal Bank of Scotland said: "The government has increased support in a number of important areas. The proposals will enable us to strengthen our position and to support our customers across the economy."

John Varley, chief executive of Barclays, said: "The package addresses the most significant issues in the market, namely confidence in the strength of the banking system and the working of the money markets.

"These initiatives, along with the government's announcements in recent days relating to the protection of retail deposits, and the Bank of England's actions to assist the functioning of the money markets, offer welcome stability to the British banking system and will lead to the increased provision of credit to households and businesses."

A spokesperson from the British Bankers' Association (BBA), said: "The British Bankers' Association welcomes government action that, in these extraordinary circumstances, are providing additional capital for banks and assistance to get lending started again."

Derek Simpson, Unite joint general secretary said: "It is imperative that the financial measures announced today marks the turning point in the world of banking and finance.

"Workers in the financial services industry are not the culprits of the credit crunch and we are not prepared to allow them to become the victims. The taxpayer must now get a firm assurance that the financial lifeline extended to these large organisations will be used to protect jobs and the public."

However, shareholders and taxpayers have expressed their concerns over the plans.

Roger Lawson, head of the UK shareholders' Association, said: "The proposals are generally positive although we have major reservations on the restriction of dividends that the banks may be paying.

"It is not clear from what Darling has said how much the government will interfere with the banking dividends.

"But certainly many of our members will be concerned if the dividends paid by the banks are reduced or suspended – many of our members rely on dividends as part of their pensions and many members subscribed to rights issues on the basis of dividends."

Tax campaign group the TaxPayers' Alliance also has reservations about the plan.

Matthew Elliott, chief executive of the TaxPayers' Alliance, said: "The government is using taxpayers' money as an easy way out, and haven't fully explored other options that don't put £50 billion of our hard-earned cash on the line.

"With ordinary taxpayers' money at stake, they must put mechanisms in place to ensure that the money isn't frittered away on excessive bonuses and to make sure that it is not wasted.

"The government must now explore other options to reduce the amount of taxpayers' money the banks need, including making deposit protection more credible, suspending mark to market regulations and cutting interest rates. The government say they have the interests of hard-working taxpayers at heart, now they need to prove it."

Talking to the BBC this morning, Alistair Darling maintained the scheme is necessary to save the banking system.

"Any investment carries with it a risk. This is a significant amount of money we are putting in and we are expecting to get it back," Mr Darling said.

"If we don't do this, the problems are going to get worse and worse."