U.K. Unveils Plan to Prop Up Banks

The U.K. government announces a plan to inject $87 billion into the banking sector.

Author:: TSC Staff
Publish date:: Oct 8, 2008 4:04 AM EDT

Updated from 1:52 a.m. EDT

The U.K. government Wednesday unveiled a rescue package for the U.K. banking sector in which it will invest up to 50 billion pounds ($87 billion).

The government will buy preference shares, and the Bank of England will make at least 200 billion pounds available for banks to borrow. The government also will provide a guarantee of about 250 billion pounds to help refinance debt,

Bloomberg

reports.

The steps to partially nationalize the banking industry provide "the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses,"' Chancellor of the Exchequer Alistair Darling said in a statement,

Bloomberg

reports.

The U.K. plans to make 25 billion pounds immediately available in the form of preference shares and stands ready to provide an additional 25 billion pounds, according to

Bloomberg

. The amount available to each bank will vary and will depend on their dividend payouts, executive pay policies and will require the banks to lend to small businesses and homeowners.

The government said eight banks, including

Barclays

(BCS) - Get Report

Royal Bank of Scotland

(RBS) - Get Report

and

Lloyds

, have committed to increase their total Tier 1 capital by 25 billion pounds before the end of the year.

This article was written by a staff member of TheStreet.com.