Brown seeks foreign help to rescue banks

Published on Saturday 17 January 2009 18:32

GORDON Brown has confirmed that Britain's stricken banks will require a second bailout, calling for "international action" to rescue them from collapse.

The Prime Minister, who revealed he was "angry" at the banking system, said a new global solution would be required to solve the ongoing crisis, on top of the 500bn taxpayer-funded plan announced last October.

Brown was speaking last night as officials at the Treasury continued talks with banks in a bid to thrash out the details of a new rescue package.

The timetable for a new deal has shortened dramatically in the past 48 hours after shares in the banks, notably Barclays, plummeted on Friday.

Brown said the banks would only be properly cleansed if countries acted in a co-ordinated manner. In a change of tone, he has started to challenge what he considers to be the "irresponsible" lending of British banks to foreign nationals and overseas companies.

It is this exposure to the international losses caused by sub-prime markets in the US which had left them so weakened, he claims.

"As far as British banks are concerned, the greatest problem we have is international," Brown said. "It is the exposure of British banks to international losses that is the biggest problem we face. So what we need is an international solution."

One option up for discussion is a national "bad bank", which would take on the toxic debts that are poisoning the banks' balance sheets. A bad bank could take on as much as 200bn of toxic assets. Also under consideration is a 100bn scheme to underwrite the value of banking loans.

Brown said it was essential for banks to come clean about the true scale of the so-called "toxic assets" still on their books.

"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off. We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with," he said.

Brown said discussions with international leaders would continue "in the next few days".

"They will lead up to decisions that I believe that the international community has got to modernise and change and reform and get to the roots of the problem that makes us angry about the way that the system is operating," he said.

Government ministers yesterday signalled that the financial crisis would trigger a wholesale shift in the entire British economy.

Business Secretary Lord Mandelson said the country needed to move away from an over-reliance on financial services. He added: "We will see our economy diversify away from an over-dependency on financial services. We've got to identify in this country what specialist businesses we are going to invest in; where are we going to make our contribution to the global economy."

Mandelson said he could not say for sure that measures introduced by the Government last year were going to work, because the hole the banks were in was so deep. He added: "What they've got themselves into is so complex technically, so challenging, that nobody responsible would say that this is all that needs to be done in order to put right what has gone wrong."