The British Treasury may appoint its own representatives to the boards of the country’s biggest banks as it begins buying stakes in them over the next few weeks, a government official said.
Policy makers need to consider how to protect taxpayers’ interests when taking significant stakes in lenders, said the official, who spoke on condition of anonymity.
Governments in Europe and North America are preparing plans to buy stakes in banks to alleviate the credit freeze threatening to tip the world into a recession. The UK’s plan contrasts with the US, where Treasury Secretary Henry Paulson said two days ago that US authorities would have non-voting shares.
The UK government last week said it would invest at least £50 billion (US$87 billion) to recapitalize Royal Bank of Scotland Group Plc, Barclays Plc and at least six others.
Britain’s program may be big enough to give the government a controlling stake in some lenders.
Edinburgh-based RBS, with a market capitalization of £11.9 billion, will seek about £10 billion from investors and the government, a person familiar with the matter said. Barclays’s market capitalization is £17.4 billion.
UK Treasury officials have been working with the banks on the program and today will begin outlining details of a related plan to guarantee about £250 billion in interbank loans though an insurance system.
Once it has unveiled how it will price the insurance policies, regulators will begin talking to banks about capital injections and what share of their business is nationalized.
“We are working hard toward implementation,” Chancellor of the Exchequer Alistair Darling told reporters in Washington. “We will be doing something pretty quickly. It is essential we take action here in the UK.”
British Prime Minister Gordon Brown’s government last week was forced to step up its efforts as Britain lurched toward a recession and shares of the country’s biggest banks lost more than half their value in a week. Since then, Darling has been urging fellow finance ministers in Washington to adopt similar plans to rebuild bank balance sheets.
Paulson signaled his top priority is getting his initiative to buy financial stocks running as soon as he can: “This is a plan that I’m quite confident will work.”
Canada’s government last week moved to shore up its banks by saying it will buy as much as C$25 billion (US$21.6 billion) in mortgages from them. The German government will create a fund of as much as 100 billion euros (US$134 billion) to recapitalize German banks hurt by the financial-market crisis, Handelsblatt newspaper reported, without identifying its sources.
Finance ministers and central bankers from the G7 major nations, meeting in Washington on Friday, agreed to ensure that key banks will get access to liquidity, funding and taxpayer funds as capital.
RBS, Britain’s third-largest bank by market value, had its credit rating cut by Standard & Poor’s for the first time in almost a decade on concern that its financial health was deteriorating last week.
The steps to partially nationalize the industry provide “essential preconditions” to kick-start lending, Darling said.
“We had to say to banks: you recapitalize and, if you do that, we will guarantee your inter-bank lending,” he said. “That’s what they need in order to get the funds they need.”
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