Brown: £37bn bailout essential in first crisis of global age

The government's £37 billion investment in Royal Bank of Scotland (RBS), Lloyds TSB and HBOS is "unprecedented but essential", Gordon Brown said this morning.

Speaking as the government takes a 63 per cent stake in RBS and a 43 per cent stake in the soon to be combined Lloyds TSB and RBS, he said the action should "start to make a difference" but global action was needed.

"For savers, for small businesses, and for homeowners, we must in an uncertain and unstable world be the rock of stability on which the British people can depend," the prime minister said. "At this time of uncertainty we want British banks to lead the world.

"We have agreed to make a series of commercial investments amounting to £37 billion of public money in a number of UK banks: £20 billion in the Royal Bank of Scotland, and following the takeover of HBOS by a strong bank – Lloyds TSB - £17 million in the merged bank. The government will not be a permanent investor.

"Over time we intend to dispose of all these investments in an orderly way. In the meantime our shares will be held at arms length.

"We are laying down conditions to make sure the taxpayer gets a fair deal."

He added he would prefer for investors to come from the markets, but the government had been prepared to step in as a "last resort".



Mr Brown added the investment was not at the expense in spending in the health service or schools, and the taxpayer will benefit from the upside of the bank investment.

He also explained the old bonus culture and risk taking will be replaced.

"Rewards will only be, and firmly based on, performance and long-term value creation. I believe for the whole country, the guiding ideal is fair reward for hard work, for effort and for enterprise, not incentives for irresponsibility or excessive risk-taking for which the rest of us have to pay."

Alistair Darling said he thought it was extraordinary boards were not aware of the risks the banks were taking.

He said: "It really is quite extraordinary that boards themselves didn't more fully understand what risks that they were allowing their banks to become exposed to and you have seen the consequences here, in some banks in particular.

"Now I think the regulatory system needs to ask some serious questions to ensure that people have risk monitoring measures in place. Northern Rock didn’t for example, they weren’t nearly as robust as they should have been. The second lesson I draw is this; that of course you need a robust domestic supervisory system, but you also need one that can take account of the fact that nearly every institution we have now is operating across the world, so that when things start to go wrong say in the sub-prime market in America, that is clocked in every regulatory body across the world and that we don’t just look at the solvency of institutions but what happens if liquidity dries up."

Mr Brown also commented that the UK model would be copied around the world – including a redrawing of the US $700 billion bailout plans to include recapitalisation and further new plans in Europe.

"It is now generally agreed right across Europe and increasingly across America that to recapitalise the banks and to strengthen them is absolutely essential.

"We would prefer other investors to come in, and many will, but as the last resort it is right that the government is prepared to take the steps that are necessary."