THE British Prime Minister, Gordon Brown, is reportedly preparing to pump billions more into the banking system amid mounting evidence that his £37 billion ($76 billion) part-nationalisation has failed to get credit flowing to homeowners and businesses.
As banks continue to restrict lending, the Chancellor of the Exchequer, Alistair Darling, has been considering a range of options including cash injections and offering banks state guarantees to raise money privately.
Evidence of any further deterioration in the British banking market could prove to be a setback for National Australia Bank, which is thought to be taking a renewed look at offloading its operations there.
The bank's chief executive, Cameron Clyne, is believed to be scrutinising the Clydesdale and Yorkshire divisions, which are unpopular with investors for their poor record on shareholder returns. Combined, the banks contribute just under 14 per cent of NAB's overall earnings.
Millions of British savers face the prospect of 0 per cent accounts within days as the Bank of England prepares to cut interest rates to the lowest level in its 315-year history. Borrowing costs could fall from 2 per cent to as low as 1 per cent this week in an attempt to stimulate lending.
Markets are pricing in a half percentage point cut to 1.5 per cent, bringing the Bank of England rate ever closer to the zero point at which it must start seeking alternative ways to stimulate the economy. At its last meeting it voted unanimously for a 1 percentage point cut in borrowing costs.
However, the big lenders remain stubborn, with some refusing to pass on interest rate cuts to customers.
The number of new home loans plunged to a record low in November, with only 27,000 mortgages approved by banks and building societies. Small businesses are also suffering from the lending drought and there are growing fears that the car industry could be permanently damaged.
However, any further attempt to restart lending by injecting more cash into the banks looked likely to land the Government in controversy.
Vince Cable, the treasury spokesman for the opposition Liberal Democrats, signalled that his party would oppose the plans. He said: "We cannot have a situation where the taxpayer makes open-ended financial commitments to the banking system when the banks then wilfully put their own short-term self interests ahead of the national economy."
Another option said to be on the table is to buy up toxic assets and put them in a so-called "bad bank", which would try to dispose of the bad debts. In a mirror of an idea first aired in the US, the Treasury would take bad loans off the hands of banks, swapping them for government bonds.
A senior Treasury source said: "The Chancellor is considering all the options."
Telegraph, London
