The UK government bailout plan unveiled tonight will allow the government there to invest 50 Billion into preferred equity in domestic banks while the Bank of England will increase a short term credit line by 100% t0 200 Billion GBP (in addition to up to 250 million in loan guarantees intended to stimulate the commercial lending market).
This sweeping plan will partially nationalize the UK banking system and takes the fifth largest economy into uncharted territory. So far Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered have indicated that they will participate in the program. Similar to the US bailout plan this action will comes with strings attached. Financing is available conditional on executive compensation caps, dividend restrictions for common stock and new consumer lending standards.
It is important to note that the UK has been facing rapidly increasing consumer inflation in recent quarters –leaving BOE head Mervyn King in an unenviable position with respect to rate policy in the current liquidity crises.