The British government is talking to lenders about stepping up loans to credit-starved companies, but a second bailout of banks is not the preferred option, Prime Minister Gordon Brown said on Sunday.

Sharon Lorimer

"I don't think that's the first thing that anybody would think about at the moment," Brown said in a BBC television interview, when asked if the government planned a second recapitalization of the banks.

In October, the government said it would pump 37 billion pounds ($53 billion) into three major British banks—Royal Bank of Scotland, and HBOS and Lloyds TSB, which are merging.

The banks have been hit by the credit crunch, which is now sending the British economy spinning into recession.

The BBC and The Times newspaper both reported on Saturday that the government was considering a second bailout because measures taken so far had failed to get banks lending again.

But Brown said: "We've got other means by which we will try to get liquidity and cash into the system." 

Brown said the government was urgently talking to the banks about solving problems that companies faced in obtaining funding and wanted a solution over the next few weeks.

Finance minister Alistair Darling told the BBC that banks were not lending as much as he would like them to do but said recapitalization was "not your first port of call."

Darling noted that RBS, HBOS and Lloyds TSB had agreed to maintain lending
to homeowners and small firms at 2007 levels.

He said the government was working with the other banks "to make sure these banks are strong enough in the first place—in other words to help that recapitalisation process—but we also have to ensure that there is enough money in the system."

Banks Expected to Do More

Brown said some players had disappeared from the lending market so "the existing institutions are going to be expected over time to do more."

Britain nationalized two mortgage lenders while some other overseas lenders have collapsed or withdrawn from the market.

Surviving institutions will be expected to step up lending to fill the gap.

To help them do so, the Treasury is considering a scheme to insure British banks against some of the losses they could incur on new lending, the BBC reported on Sunday.

The Times said on Saturday that options the government was looking at to boost lending included cash injections, offering banks cheaper state guarantees to raise money privately or buying up so-called toxic assets.

A Bank of England survey on Friday showed the credit squeeze for British families and businesses may intensify in 2009.

That could deepen the recession and swell job losses, reducing Brown's chances of winning the next general election, which he must call by mid-2010.

The opposition Conservatives consistently lead Brown's Labour Party in the polls.

Brown told the BBC on Sunday he had no plans to call an election in 2009, saying it was "the last thing on my mind."

Brown also announced plans on Sunday for a 1930s U.S.-style public works program to ease the pain of recession by creating around 100,000 jobs. Brown told The Observer newspaper the jobs would be created through capital investment in schools, hospitals, environmental work, transport and infrastructure.

Brown said it was too early to say whether the measures he has taken to stabilize the banks and the economy—including a multibillion-pound economic stimulus plan—are working.

Tools:

Print Email