British government mulling new banking rescue package: reports

Jan 17, 2009, 9:44 GMT

London - British Prime Minister Gordon Brown is mulling a new multi-billion pound rescue package to for the country's debt- ridden banks, including possible plans to establish a 'bad bank' to buy up their bad debts, the Daily Telegraph reported Saturday.

The paper said Brown's ministers were spending the weekend meeting with senior banking executives, in drafting what could be plan for upwards of 200 billion pounds of taxpayer money used to underwrite a writeoff of the major banks' bad assets.

The Telegraph report noted some resistance by banking executives to the 'bad bank' strategy which the government views as a way to get the banks lending again.

Parallel to the 'bad bank' action, the government was also considering using the now-nationalised Northern Rock as a 'good bank' to provide urgently-needed loans to private borrowers and companies.

In addition, the Bank of England was gearing up to offer tens of billions in credit to banks to fund new loans for homeowners and businesses, reports said.

In an interview with the Financial Times on Saturday, Brown argued for further strong action in hinting at a new bail-out on top of the 500 billion pound aid package from London last Octobr.

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

Brown warned banks against retrenching in their own domestic markets. 'The greatest risk after the events of the last few months is a retreat into what I would call financial isolationism.'