EYE ON THE UK: A New Banking Rescue Act

Over the weekend the UK issued the Banking Act of 2009, which allows the Bank of England, Financial Services Authority (FSA) and the Treasury to step up more quickly to rescue troubled institutions, including provisions to temporarily nationalize or sell-off stricken banks. For investors with monies tied up in injured banks, the Act calls for funds to be rapidly transferred to other banks and depositors may now access their money in a matter of days rather than weeks under previous conditions.

The Act is largely a response to the lethargic response of regulators to the collapse of Northern Rock in 2007, in which depositors made a run on the bank after it emerged that Northern Rock sought government help.

Over the weekend PM Brown met with European leaders from the Group of 20 states in Berlin to discuss the global crisis. He said that "banks must act in the long-term interests of their shareholders and therefore of the economy as a whole, not in the short-term interests of bankers." Brown rejected the Banking industry's bonus culture and signaled that Britain must return to traditional savings and mortgage banks. He voiced that loans must be made on "prudent and careful terms," while equally stressing that domestic growth would come from granting loans to first-time buyers, entrepreneurs, and individuals of middle and modest incomes.

RBS and Lloyds, both part-owned by the taxpayers, have asked the government to insure almost 500 Billion Pounds ($720 Billion) of assets as part of the Treasury's plan to spur lending, noted the Sunday Telegraph. Today RBS said it plans to cut cost by more than 1 Billion Pounds by splitting the bank into two units, including a "core" business and second division holding toxic assets. Additionally, Chancellor of the Exchequer Alistair Darling ordered Northern Rock to expand lending by 14 Billion Pounds.

These measures are the first in a series to be announced this week to revive the U.K. banking industry. RBS reports on Thursday and, alongside JPM’s Investor Day, will be our primary focus in terms of timing a catalyst on marked to market, banking regulation, transparency, etc…

Matthew Hedrick
Analyst