The Old Lady to the rescue

key points in the latest British banking bailout.

The British Treasury and the Bank of England reached a deal this morning with the banks at 5 this morning. Statement here.

Key points:

* Eight core commercial banks undertake to increase their Tier 1 capital by £25bn.

* If necessary the government will provide this, as an equity stake, with conditions on High Street lending and executive pay; details to be negotiated individually.

* Another £25bn is available on similar terms to a wider group of eligible banks, including subsidiaries of foreign banks (Abbey, owned by Santander, is already in the core group).

* A new £250bn facility will be created to guarantee interbank loans.

* “At least” £250bn £200bn of liquidity is available to banks from the Bank of England, on extended collateral; new permanent scheme for liquidity to be proposed next week.

* No blanket deposit guarantee (the retail deposit guarantee has already been raised to £50k).

Multiply the billions by 10 to get an idea of the equivalents for the US economy (£1 = $1.75; $2 trn economy vs. $12 trn).

What looks new here is the massive intervention to unglue the wholesale interbank market – not in the Paulson bailout.

Passing thought: who gave the British government this sort of financial credibility? Louis XV, Napoleon, the Kaiser, and Adolf Hitler. To defeat them, its predecessors had to raise colossal sums – and have always paid the interest on the nail. The British national debt reached 175% of GDP after WWI, 250% after WWII, and 290% in 1815. It’s now 44%, so Britain is a long way from maxing out the gold card.

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web