Second British bank rescue

LONDON - BRITAIN threw its troubled banks another multi-billion pound lifeline on Monday by allowing them to insure against steep losses and guaranteeing their debt to stop the credit crunch pushing the economy into a deep slump.

The multi-pronged plan aimed at getting banks lending again to credit-starved consumers will also raise the government's stake in Royal Bank of Scotland, of which it already owns 58 per cent.

Britain pumped 37 billion pounds (S$81.6 billion) into the banks in October but credit still remains scarce and figures this week are expected to confirm the economy is now in recession for the first time since 1992.

Under the latest British plan, lenders would have to identify their riskiest assets which they could then insure with the government for a fee. They would still be liable for initial losses but could at least put in a ceiling, boosting confidence.

The Treasury said it would also extend the window for its Credit Guarantee Scheme - which underwrites debt for banks that were recapitalised by the government - to the end of this year.

It is extending the Bank of England's Special Liquidity Scheme, which expires this month and allows financial institutions to swap hard-to-trade assets for more liquid ones.

In addition, the package builds on the recommendations of a government-sponsored report that called for guarantees of the mortgage-backed securities market.

The Treasury said it would also no longer run down the loan book of Northern Rock, the bank it nationalised lastyear. -- REUTERS